As Western markets continue to falter, more and more asset managers are looking to Asia for growth opportunities. This is where Hong Kong – offering a Western business culture within the heart of China – has a significant advantage.

Hong Kong’s reputation as a dynamic international hub is reflected throughout The Banker’s global asset management survey in comments made by its respondents. One Paris-based chief investment officer says: “Hong Kong is essentially a Westernised city in an emerging region, offering us easy access into Asia.” Add to this the steady stream of international public offerings (IPOs) from China and beyond and massive investor demand for yuan-denominated Dim Sum bonds following the gradual opening up China’s currency to foreigners, and Hong Kong has become a magnet for fund managers keen to participate in Asian economic growth.

Simon Galpin, Invest HK’s director-general of investment promotion, has several explanations for the Asian hub’s ascendancy as a global financial centre. He says: “Investors are clearly looking to Asia for growth in the current global economic environment and Hong Kong is at the centre [of this region]. It has the advantage of being part of China. It also has a vibrant press – so it is a good place to gather information across the region. Plus, taxes are low. This all makes it a dynamic city and one that is remarkably well plugged in to London and New York.”

The CIO of a recently launched Hong Kong-based hedge fund says: “Clients feel comfortable with the regulatory regime in Hong Kong. Plus there is the fact that many of the people in Hong Kong have experience working in European and US investment firms, so clients are not talking to local Chinese people without knowledge of Western culture.”

China advantage

Although Hong Kong and Singapore are still competing hard against each other to become Asia’s dominant financial centre, Hong Kong’s proximity to China has given it an advantage. One respondent admitted that while Singapore is an ideal hub for south-east Asian countries, it is geographically too far south to cover mainland Asia. 

As well as the booming Dim Sum market, Hong Kong’s financial development has also undoubtedly been boosted by the steady stream of IPOs by mainland Chinese companies over the past few years. Mr Galpin says: “Hong Kong is the number one centre for IPO capital raised in the past two years, overtaking London and New York.”

Despite increasingly tough conditions in the global market for IPOs, Hong Kong continues to attract companies from much further afield. Italian luxury goods company Prada’s decision to list its IPO in Hong Kong in June in recognition that Asia has become the company’s number one market is a good reminder that Hong Kong has become a global rather than a regional financial centre.

Other recent large Hong Kong IPOs include Swiss commodities trading company Glencore, which raised $10bn in a dual listing in London and Hong Kong earlier this year. And despite delays, Sany Heavy Industry, China's largest construction machinery maker, still aims to raise up to $3.3bn in what could be Hong Kong's second biggest stock offering this year.

Stepping stone

At the same time that Hong Kong has become a springboard for Chinese companies to go global, it has also become a stepping stone for Chinese investors to invest in Europe and North America. Lorcan Tiernan, partner in Dublin-based law firm Dillon Eustace, which recently opened up an office in Hong Kong, says: “Chinese fund managers are looking at the European and US markets and setting up in Hong Kong on the basis that it is a recognised jurisdiction in developed markets.”

Mr Tiernan says that although the majority of Hong Kong based managers still domicile their products in the Cayman Islands, an increasing number are establishing funds complying with Europe’s Undertakings for Collective Investment in Transferable Securities (Ucits) directive in Dublin and Luxembourg, opening to them the retail investor market in Europe and beyond. “The level of interest is growing and the Ucits brand is already well recognised in Hong Kong,” he adds.

One Hong Kong respondent told The Banker that the structure of the local fund management industry is changing rapidly with the entry of new players. “The quality of managers has recently picked up strongly with the arrival of new firms, but it is still a niche market, with smaller funds than in the US and great opportunities,” he says. “There are still very few large local funds and most big investors in the US and Europe are under-allocated in Asia and currently increasing their exposure.”

Management movement

Mr Galpin of Invest HK says: “We see a constant movement of fund managers between the three financial centres [London, New York and Hong Kong]. Recently there has been a sharp increase with leading banks expanding and the same is true in asset management.”

Many specialist investors are also eager to increase investment in Asian markets as opportunities arise. Nigel Denison, head of markets and wealth management operations for Bank of London and the Middle East (BLME) is looking forward to greater issuance of Asian sukuk in coming years. London-based Islamic bank BLME, which began managing sharia-compliant funds two years ago, expects to see healthy growth in the sukuk market in the next few years.

Mr Denison says: “So far, the sukuk market has performed extremely well, and some big companies such as GE and Nomura have issued sukuk. But the vast majority come from the Middle East or Malaysia. An Australian sukuk seems likely and there’s even been talk of a Russian sukuk, but as yet nothing from India or China.”

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