HK scales new heights

Alexa Lam, Asia-Pacific chief executive at ICI Global — the association representing regulated funds globally — echoed those sentiments. "Hong Kong's asset management industry is excited at the opening of what is effectively a brand-new market. I believe many will take advantage of this tremendous opportunity, which will help develop financial and investment services and talent, and allow for easier movement of people and services within the Greater Bay Area," she said.

"To be successful, it will be critical for fund managers to identify bank distributors within the Greater Bay Area, establish a partnership, train them on their products and ensure that the banks have a strong protocol in place for conducting product due diligence and onboarding products."

Major banks in Hong Kong are flexing their muscles as they each grab a slice of the wealth management pie, thereby raising the standards of the city's wealth management services.

The Hongkong and Shanghai Banking Corp said that with its 5,000 retail banking employees in the Greater Bay Area, it can provide more than 1,000 selected low-to-medium risk wealth management products of all asset classes to clients.

Citi Hong Kong is working with a partner bank on the mainland and is set to offer over 100 types of wealth management products with a low-to-medium investment risk, including bonds and mutual funds, as well as multiple foreign currencies services. The bank plans to hire more than 1,000 wealth management professionals by 2025.

Bank of China (Hong Kong) Vice-Chairman and Chief Executive Sun Yu said the wealth management connect not only creates a new impetus for the industry in the Greater Bay Area, but also helps to promote the high-quality development of the financial industry in the region, as well as the internationalization of the renminbi.

Hong Kong Association of Banks Chairperson Luanne Lim said, "As connectivity strengthens across the Greater Bay Area, the banking sector will strive to enhance investor education, and promote cross-border acceptance of qualifications and talent development."

The assets under management of Hong Kong's asset and wealth management business grew by 21 percent year-on-year to nearly HK$35 trillion ($4.5 trillion) by the end of last year, about one-third of which came from net fund inflows. About 64 percent of the funding sources were from overseas, demonstrating the extent of internationalization of Hong Kong's asset and wealth management business.

Financial analysts expect such capital market connectivity programs to signal a new chapter in financial infrastructural links between the mainland, particularly other cities in the Greater Bay Area, and Hong Kong.

"The Southbound Bond Connect, along with the Shanghai-Hong Kong Stock Connect, the Shenzhen-Hong Kong Stock Connect, and the Cross-boundary Wealth Management Connect cover a full range of financial products, including equity, bond and wealth management products," according to ICBC International analysts Angus To, Li Yue and Jasper Chow.

"In future, the interconnection arrangement is expected to consolidate and deepen gradually so as to facilitate financing, fund flows and renminbi internationalization."

IPO market gets boost

The capital market connectivity path between Hong Kong and the mainland started in 2014, with the Shanghai-Hong Kong Stock Connect, the Shenzhen-Hong Kong Stock Connect, Mutual Recognition of Funds, the ETF Connect and the Northbound Bond Connect gradually being rolled out.

These programs have lifted the SAR's position as an asset management center. Global investors can now access the mainland market, meeting the needs of investors seeking returns and catering to the demands of the vast pool of untapped mainland capital.

According to Hong Kong government figures, the daily average turnover in northbound trading of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect soared by more than 90 percent to about 110 billion yuan, while that of the northbound Bond Connect surged 30 percent to 23 billion yuan between July 2020 and June, indicating that international investors have continued to use Hong Kong as a platform for investing in the mainland's financial markets.

With Hong Kong's reform of its listing regime that allows biotech companies and those with weighted voting rights to go public, the local IPO market received a major boost. Between July 2020 and June, funds raised through IPOs in Hong Kong had exceeded HK$500 billion — an increase of more than 50 percent compared with a year ago. In the same period, the average daily turnover of Hong Kong stocks surpassed HK$160 billion — almost 70 percent higher than that a year ago.

With a simple and low-tax regime, an easy listing process, an absence of capital controls, a good regulatory framework, and being a financial gateway between the mainland and foreign countries, Hong Kong's financial hub status has been cemented.

Hong Kong was ranked third in the Global Financial Centers Index published in September — trailing only New York and London in terms of infrastructure, human capital, financial sector development and reputation.

Between July and October 2020, net capital inflows into the Hong Kong dollar market reached more than HK$300 billion. By the end of June, total deposits in Hong Kong's banking system had exceeded HK$15 trillion — up by almost 8 percent over the previous year — according to the Hong Kong government's business environment report released in September.

Hong Kong's foreign exchange reserves rose 10.5 percent to HK$3.8 trillion, equivalent to 1.8 times the Hong Kong dollar monetary base. The city's banking system has remained robust, with the capital adequacy ratio and major banks' average liquidity coverage ratio at 19.8 percent and 154 percent, respectively, in the second quarter of this year, both well above the international regulatory standards. The classified loan ratio remained relatively low at around 0.9 percent.

According to the World Investment Report 2021, published in June by the United Nations Conference on Trade and Development, Hong Kong was ranked as the world's third-largest recipient of foreign direct investment last year, behind only the United States and the Chinese mainland, and up from the fifth place in 2019.