Hong Kong: They’ve mapped out exit routes, opened offshore bank accounts and secured overseas passports.
But for now at least, Hong Kong’s high-net-worth investors are mostly staying put, easing fears that the city’s new national security law would unleash a flood of capital outflows.
Withdrawals have been minimal since the law came into effect on June 30, in part because rich investors are still assessing how the Chinese government’s tighter grip on Hong Kong will impact asset prices and the long-term business environment, according to executives at four of Asia’s biggest wealth managers who asked not to be identified discussing private information.
While critics of the legislation have argued it will undermine Hong Kong’s role as a financial center, some wealthy investors are open to an alternate narrative — espoused by Hong Kong’s government and the city’s richest tycoons — that the law will help stabilize an economy battered by months of pro-democracy protests. That view has been reinforced by signs of tacit support from Beijing, including record purchases of Hong Kong stocks by Chinese funds and a spate of high-profile listings by the nation’s technology giants.
Whether the sanguine outlook will last is anyone’s guess, especially with Hong Kong caught in the crossfire of an intensifying clash between China and the U.S. But the upshot since June has been a strong Hong Kong currency, a resilient property market and steady stock prices. Capital inflows have been so big in recent weeks that authorities intervened to prevent the local currency from breaching the strong end of its trading band, a far cry from the doomsday scenario predicted by Hong Kong bears like Kyle Bass.
“While people are probably opening overseas accounts and considering leaving, their preparation won’t lead to a major exodus of capital yet,” said Kenny Wen, a Hong Kong-based wealth management strategist at Everbright Sun Hung Kai Co. “Money is moving into Hong Kong at the same time because investors are bullish on Hong Kong’s stock market, especially the new listings.”
Many rich investors who’ve kept their money in the city have cited expectations that China’s government will act to prop up Hong Kong markets, the wealth managers said.
Inflows into the city’s stocks through mainland exchange links more than doubled from a year earlier to $16.6 billion since early June, fueling speculation that state-owned Chinese funds are buying. Meanwhile, regulators in June kicked off a long-anticipated program called Wealth Management Connect, which is set to further boost inflows by allowing residents in southern China to invest in Hong Kong and vice-versa.
“We can foresee even more business opportunities and greater growth headroom for Hong Kong’s financial industry,” Eddie Yue, chief executive of the Hong Kong Monetary Authority, said last month. “As we all know, a safe and stable social environment is what every investor looks for and finds comfort in.”
Of course, the optimistic tone in markets could change quickly if China’s implementation of the security law proves harsher than expected.
Most of the city’s rich investors are ready to withdraw assets at moment’s notice, even though the pandemic has made emigrating more difficult.
Tech giants including Facebook Inc. and Alphabet Inc.’s Google are assessing the impact of the law, while some nimble startups are already moving data and people out. About half of U.S. businesses said the law made them feel less safe, according to a recent survey by the American Chamber of Commerce in Hong Kong.
Wealthy investors “would start leaving Hong Kong with their money if someone is charged under the national security law for doing nothing related to subversion,” said Jacinto Tong, chief executive officer of Hong Kong-based real estate investment firm Gale Well Group. Other oft-cited red lines include capital controls and restricted access to the internet.
In the meantime, wealthy individuals who want exposure to China’s budding economic recovery see little reason to ditch Hong Kong. The city is still an unrivaled hub for buying everything from Chinese shares and dollar bonds to financial derivatives. And with China now ahead of many nations in getting back on its feet from the pandemic, many are loath to leave money on the table.
“If you’re bullish on China, it’s hard to justify why you would want to pull your money out,” said Benjamin Quinlan, chief executive officer of Quinlan & Associates, a consultancy in Hong Kong. – Bloomberg
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