Amp up HK's finance in tandem with mainland

Despite the COVID-19 pandemic and geopolitical situation that have led to global supply chain disruptions, as well as high inflation, interest rate hikes and tightened monetary conditions, the Hong Kong Special Administrative Region (HKSAR) government and the city's finance sector have remained steadfast in safeguarding Hong Kong's position as a premier international financial center. Offshore Renminbi (RMB) business services and mutual market access between Hong Kong and Chinese mainland continue to be the city's singular advantages.

Largest offshore renminbi business hub

In his first Policy Address on October 19, 2022, Chief Executive John Lee Ka-chiu pledged to expedite the implementation of a series of mutual market access arrangements supported by the China Securities Regulatory Commission. Notably, to further promote the issuance and trading of RMB securities, an amended ordinance came into operation in January 2023 to exempt the stamp duty payable for certain transactions relating to dual-counter stock conducted by market makers, with a view to enhancing the RMB stock trading mechanism. Another initiative is to complete as early as possible preparations for the launch of the Northbound Trading of Swap Connect, a mutual market access program between Hong Kong and mainland interbank interest rate swap markets, which has been hailed by investors at home and abroad who are keen to trade in cross-boundary interbank derivatives markets.

Hong Kong processes about 75 percent of offshore RMB settlement globally. Lee is adamant that the HKSAR government will double down on launching more RMB-denominated investment tools and providing stable and highly efficient treasury services such as foreign exchange, exchange rate risk and interest rate risk management tools in the market.

Lee, in his Policy Address, also explored enhancements to the Southbound Trading of Bond Connect. This would facilitate the issuance and trading of more diverse "dim sum" bonds, and continue the discussion with the mainland on further expansion of mutual market access.

"As the world's largest offshore RMB center, Hong Kong is already at forefront in promoting RMB internationalization. The further extension of mutual market access to more asset classes, enhancement in Bond Connect and RMB stock trading mechanism will definitely extend the breadth and depth of the offshore RMB center and international financial center," says David Liao, co-chief executive of the Hongkong and Shanghai Banking Corporation Limited.

"Fintech and green finance represent the most exciting growth sectors in the global financial industry, and we are happy to see the government's commitment in supporting Hong Kong's drive to capitalize on these outstanding opportunities," he adds.

Applauding the HKSAR government's aspiration to perfect these cross-boundary schemes, Sally Wong, chief executive officer of the Hong Kong Investment Funds Association, expects "major (policy) relaxations and even structural breakthroughs" to be made.

Some concrete recourses that Wong proposes include relaxing the current restrictions of Mutual Recognition of Funds, which prescribes the value of units sold to mainland investors shouldn’t exceed 50 percent of its total assets; expanding the product mix in Wealth Management Connect Scheme to encompass more complex products instead of just low-to-medium risks ones, and allowing the provision of investment advisory services beyond the current execution-only services.

Wong also suggests the relevant authorities grant permission to more mainland cities to invest in the approved pooled investment funds of the Mandatory Provident Fund (MPF), which are primarily for retirement purposes.

"If approved, Hong Kong's MPF fund managers can help to meet the mainlanders' need to build the retirement nest eggs by constructing portfolios that diversify across asset classes and markets," says Wong.

"This proposal, which is developed based on the principle of prudence and with risks well-managed, can fully leverage on the strength of Hong Kong — an expertise in regulatory bodies, investment, products and talent."

Main listing platform worldwide

Hong Kong has been consistently ranked among the top venues for initial public offerings (IPO) in the past decade, by virtue of its full-fledged financial infrastructure and long-established advantages for investment. Despite the impressive track record, the HKSAR government is intent on taking another giant step further, by supporting the Hong Kong Exchanges and Clearing Limited to introduce a new listing regime for specialist technology companies in 2023 to facilitate fundraising of advanced technology enterprises that have yet to meet the profit and trading record requirements.

Hong Kong's finance sector is weathering the pandemic storm with astonishing resilience. Statistics related to recent initial public offerings are a case in point. Hong Kong's market registered a surge in fundraising in the second half of 2022 that accounted for more than 80 percent of the predicted full-year IPO proceeds, according to global accounting services advisory firm KPMG.

PricewaterhouseCoopers (PwC) estimates that the total fundraising in Hong Kong will fetch between HK$180 billion and HK$200 billion from 100 IPO deals in 2023.

"We expect Hong Kong's IPO market to rebound in 2023 as factors such as major interest rate hikes by central banks are gradually digested," PwC Hong Kong Entrepreneur Group Leader Benson Wong said.

With its proven financial resilience and unique advantages as a gateway to the mainland markets, Hong Kong is on course to reassert itself as one of the world's top fundraising destinations in 2023.