While Covid-related restrictions and external pressures have dragged down the Hong Kong economy throughout 2022, there have been a number of positive developments in the financial sector that are worth highlighting amid the otherwise gloomy news.
The ETF Connect took effect on 4 July and the Swap Connect was announced at the same time, which is expected to be launched by the end of the year. These build on the success of the previous “Connect” schemes: the Shanghai-Hong Kong Stock Connect launched in 2014 followed by the Shenzhen link two years later, then Bond Connect in 2017 and Wealth Connect in 2021.
These Connect schemes expand the range of options available to investors in Hong Kong, Mainland China and around the world, while also creating more opportunities for financial firms in the city.
Looking at the latest additions to the Connect suite, ETFs – exchange-traded funds – invest in a range of companies, often focused on a particular sector or stock index, and have become increasingly popular in recent years. Under the ETF Connect, a list of eligible ETFs have been added to the Stock Connect scheme, enabling investors on both sides of the border to access ETFs in Shenzhen, Shanghai and Hong Kong.
Swap Connect, meanwhile, will enable mutual access between interest rate swap markets in Hong Kong and Mainland China. It will initially be open to northbound trading only, and aims to help investors manage risks for Mainland bond investments.
The expansion of these Connect schemes also highlights Hong Kong’s continued importance in facilitating the opening up of the Mainland market. It also demonstrates Beijing’s support of Hong Kong’s role as a financial hub, which has been highlighted in the 14th Five-Year Plan and the Greater Bay Area blueprint, as well as President’s Xi Jinping’s speech in Hong Kong on 1 July.
Another recent boost to the financial sector is the Hong Kong Government’s proposal to introduce tax concessions for family offices. This is a fast-growing segment, and the changes should attract more high-net-worth families and individuals to manage their investments from Hong Kong.
There is no doubt that the financial sector is hugely important to Hong Kong. One of our four pillar industries, it contributes almost 20% of our GDP.
Even amid the disruption of the past few years, Hong Kong has remained an attractive destination for asset and wealth management in Asia. Figures from the Securities and Futures Commission released in July show that assets under management, net fund inflows and total number of staff employed in the sector all increased in 2021.
But we should not be complacent, as many other Asian cities are keen to grab a bigger slice of the financial services pie.
George Leung
ceo@chamber.org.hk