Alternative Capital Destinations For Hong Kong Investors

Investors globally have been keenly following the political developments in Hong Kong. Some fear that the city’s status as an international investment hub is now in jeopardy, as civil opposition towards the Chinese government’s involvement in Hong Kong’s affairs rises.

With a physical presence in Singapore and numerous clients located in Hong Kong, Butterfield is immensely familiar with how these developments have affected capital flows. Those with assets in Hong Kong have recently been exploring alternative investment strategies to better safeguard their wealth.

There is an interesting contrast between how older and younger generations in Hong Kong manage their wealth. Older citizens generally have most of their capital tied to real estate assets, making liquidation and diversification difficult. Conversely, younger investors in Hong Kong are more likely to hold less entrenched assets, making the re-investment of their capital in neighboring markets much easier.

Photo by bady abbas on Unsplash

1997 all over again?

A mass exodus of capital away from Hong Kong is not unprecedented. When the UK handed over governance of Hong Kong to China in 1997, a large number of domestic and international investors transferred their wealth to alternative markets. One commentator estimates that the capital flight from Hong Kong between 1998 and 1999 may have totalled as much as $29.23 billion USD.

Given Hong Kong’s previous jurisdiction under British law, the majority of these assets were transferred to British Overseas Territories and Crown Dependences. Their similar regulatory systems made them convenient locations for those whose investments were previously located in Hong Kong. As a result, the governors of Singapore, Bermuda, The Bahamas, and the Cayman Islands welcomed this influx of capital with open arms.

With established offices in all of these locations, Butterfield has played a key role supporting the influx of capital from Hong Kong in the ensuing years. As such, these island nations have become attractive offshore investment locations.

It is too early to say for certain whether we are likely to see a repeat of 1997. However, in the event that political instability and civil unrest continues, it’s important to consider which markets are best suited for those seeking to diversify and reinvest their capital in markets outside of the Hong Kong jurisdiction.

Singapore; a gateway to Asia

As previously mentioned, Singapore was a huge beneficiary the last time we saw capital leave Hong Kong. Since then, Singapore has established itself as leading gateway for those businesses and investors seeking access to the region’s emerging and established markets.

With its incredibly stable government and easy access to global markets, the opportunities for wealth management in Singapore are plentiful. These benefits are already understood by Hong Kong residents, with a survey by Singapore’s American Chamber of Commerce last year showing that 90% of Hong Kong businesses seeking relocation viewed Singapore as their primary choice.

Having already enjoyed $92 billion worth of foreign direct investment in 2019, its reputation as a global investment hub is already established. Additionally, it consistently ranks either no.1 or 2 in the World Bank’s Ease of Doing Business rankings, allowing easy management of Singaporean investments from abroad.

Of course, this city-state has its drawbacks. It cannot offer the unrivalled access to Chinese investment opportunities that Hong Kong enjoys, and it’s stock market’s equity capitalisation of $665 billion cannot match the Hong Kong Stock Exchange’s $4 trillion.

Looking to Europe

Of course, in our interconnected world, geographical distance doesn’t have to limit one’s horizons when seeking investment opportunities abroad. As such, Hong Kong investors may consider London as an appealing alternative.

Serving as the European headquarters for almost 60% of Fortune 500 companies, it is consistently seen as one of the leading finance capitals of the world. The capital is also the recipient of considerable levels of overseas investment, boasting 2,256 direct investment projects between October 2014 and September 2019; more than any other major European city.

Regardless of any recent issues surrounding COVID-19 contagion and Brexit, London is still seen as a leading investment location across the world. A report from Bureau can Dijk recently reported that the city attracted more greenfield investment from abroad than Singapore, Paris, Dubai, Shanghai, and New York.

Of course, should the discontent in Hong Kong subside, this mass exodus of capital from the city and repeat of 1997 may not occur. Residents may feel safer keeping their wealth close by, within the borders of Hong Kong if they feel that markets can provide the long-term stability and certainty they are after.

To maintain its current attractiveness as an investment destination, Hong Kong must choose between full emancipation for its citizens, or a closer relationship with China. If it continues to exist between these two options, the instability in the special administrative region will only grow; and the city’s wealth will likely find its way to the alternative locations.

Despite this, all large financial decisions should always be undertaken after considerable research and thought. For domestic and international investors in Hong Kong who are seeking to transfer their wealth elsewhere, it is always paramount to speak to knowledgeable wealth managers or advisory financial institutions to learn how best to manage one’s capital during period of global market uncertainty. This has been made abundantly clear based on the consequential events that have transpired in the opening six months of 2020 alone.

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Dave R. Johnson 2 years ago Member's comment

Good read.