Source: Zhitong Finance

On January 30, Hong Kong Financial Secretary Chan Mao-po said while attending the 2024 Hong Kong Capital Market Forum that last year was affected by a combination of adverse factors such as a high interest rate environment, and the Hong Kong capital market will inevitably fluctuate. The Hong Kong Government continues to monitor the market across markets and around the clock. There are no abnormalities. The financial market continues to operate in an orderly and efficient manner, the financial system is stable, and the linked exchange rate system works well. Hong Kong's deposits increased by 5% last year, and overall, it still recorded a net inflow of capital. Middle Eastern sovereignty and family funds are actively seeking investment opportunities outside of Europe and the US. I believe Hong Kong can absorb some capital inflows. The mainland economy is still growing steadily, and indicators such as social financing and credit growth also grew strongly last year, but cultivating new growth points requires a process. The flow of capital will not be one-sided. The most important thing is to make good use of Hong Kong's unique advantages. Currently, discussions are under way with mainland regulators to speed up the listing of approved companies in Hong Kong.

Below is Financial Secretary Chan Mao-po's speech at the 2024 Hong Kong Capital Markets Forum today (January 30):

Hong Kong's capital market: challenges and opportunities

Today's forum focused on the outlook for Hong Kong's capital market and how to enhance our vitality, competitiveness and attractiveness as an international financial center. As a free and open market, Hong Kong's capital market is highly connected to both the international community and the mainland. Faced with a high global interest rate environment, a combination of external adverse factors, and geopolitical challenges, Hong Kong's asset market has inevitably been affected and fluctuated to a certain extent over the past period.

The SAR government has always monitored market conditions through cross-market linkage and around the clock. So far, we have not seen any abnormalities. The financial market continues to operate in an orderly and efficient manner, the financial system remains stable, and the linked exchange rate system works well.

In an environment of market fluctuations and a weak emotional climate, some people are pessimistic about the future market, but others think that current market valuations are attractive, and investment opportunities have emerged. Everyone has their own opinions on how the market will develop then, but I'd like to share a few observations here.

First, more than 50% of the listed companies in the Hong Kong stock market come from the Mainland. Their market capitalization accounts for more than 70% of the stock market and more than 80% of the trading volume. Therefore, in addition to being affected by the international political and economic environment, the performance of the Hong Kong market also more or less reflects investors' assessments and feelings about the mainland's economic situation and market trends. In fact, for some time now, concerns and even questions about the mainland's economy have surfaced in the media. However, if you look objectively at the mainland's data, you will see that the mainland's economic development has been achieved steadily according to their plans. Last year's economic growth was estimated at 5.2%; while the scale of social financing, monetary credit, electricity consumption, passenger traffic, freight volume, etc. all recorded strong growth last year. These indicators fully reflect the strength of the country's real economy. The country is comprehensively promoting Chinese-style modernization with high-quality development methods, and the economy is developing in a more sustainable direction. There is a process of adjusting the economic structure and cultivating new growth points. The mainland has a strong industrial base, capital, innovative capabilities and talents, and will continue to spawn new development momentum in high-end production, artificial intelligence, and green transformation. As Premier Li Qiang of the State Council mentioned at the annual meeting of the World Economic Forum in Davos, the mainland economy has formed a good and stable fundamentals over the years, and the overall trend of long-term improvement will not change.

Second, in other areas of finance and capital markets, Hong Kong actually performed well last year. For example, bank deposits in Hong Kong increased by more than 5% last year, proving that although capital is flowing in and out, there is generally a net inflow of capital. In terms of bonds, bonds issued in Hong Kong reached US$507 billion in the first nine months of last year, an increase of about 7% over the previous year. In terms of asset management, according to the latest statistics, our assets under management are around US$400 billion, which is a leading position in Asia. Last year, the capital managed by Hong Kong private equity funds reached US$220 billion, accounting for more than 15% of Asia, continuing to rank second, after the Mainland.

Third, geopolitics inevitably affected some capital flows from Europe and the US, but also because of the global political landscape, Middle Eastern capital, from sovereign funds to family offices, is also actively seeking investment opportunities outside of Europe and the US. The total assets of Middle Eastern sovereign funds reached 3.6 trillion US dollars by the end of 2022. If the share of investment is distributed according to the global countries' share of gross domestic product rankings, even without any favorable adjustments to China, quite a bit of capital will flow to China. The impact of geopolitics on capital flows is actually not one-sided.

For Hong Kong's capital market, there are challenges and opportunities ahead. The key is how we can seize and make good use of our unique strengths. Let me share a few comments on this issue.

First, we must continue to revitalize our financing market. The focus is on how to make the Hong Kong platform attract more high-quality mainland and international companies to list and finance. With regard to promoting mainland enterprises to go public in Hong Kong, we are actively discussing with relevant mainland regulators to speed up the process of approving the listing of enterprises in Hong Kong. Externally, we will encourage more companies from the Middle East and Southeast Asia to go public in Hong Kong.

On the other hand, we will also focus on developing a “headquarters economy” to attract domestic and foreign companies to set up headquarters or branch businesses in Hong Kong, and introduce high-quality domestic and foreign enterprises to Hong Kong. This will also help strengthen the role and function of Hong Kong's fund-raising platform.

At the same time, we will also make every effort to develop the local bond market to supplement the financing function of the stock market and banking system, and will continue to attract more mainland and foreign countries to use the Hong Kong bond market platform to deepen the development of the bond market through debt issuance, technological innovation and related infrastructure improvements.

Second, continue to expand and deepen connectivity with mainland financial markets, and strengthen Hong Kong's position as an offshore RMB business hub. The purpose of the incremental expansion of connectivity is to strengthen the links and connections between the mainland and international capital markets through Hong Kong. On the one hand, it helps the mainland's financial market open up in an orderly manner and contributes to the country's steady construction of a financial power; on the other hand, the two markets have wider lanes and more layers of roads, and the flow of capital through Hong Kong will naturally increase. In this regard, we are closely discussing with mainland regulators to expedite related work. One important step is to add a RMB trading desk to the “Southbound Connect”, so that mainland investors can directly purchase Hong Kong stocks in their onshore renminbi, facilitate the arrival of their capital and reduce the risk of their exchange rate. In addition, including more international enterprises within the scope of the “Southbound Link” is also an important step. It allows these international enterprises to simultaneously receive international and mainland capital, which helps them with their liquidity and valuation, and forms a virtuous cycle.

Deepening connectivity will also further promote Hong Kong's development as an offshore RMB hub. The function of the RMB as an international trade, payment, and reserve currency will continue to be enhanced, and the world will need more investment tools and risk management tools denominated in RMB. Over the past few years, with the support of central ministries and departments, the interconnection of derivatives has also progressed steadily, including MSCI A50 index futures, interest rate swaps, etc., and treasury bond futures will soon be launched. Last week, the People's Bank of China and the Monetary Authority (Hong Kong Monetary Authority) also announced “three links, three convenience” policies and measures, such as promoting mainland bonds as eligible collateral, which will better meet the liquidity management needs of international investors in the mainland bond market, while also increasing the depth of Hong Kong's offshore RMB market.

Third, develop asset and wealth management businesses to attract more capital to Hong Kong. Over the past year, the HKSAR Government actively promoted the development of asset and wealth management business. Family offices are one of the key points. Our policy statement issued in March last year introduced a comprehensive set of strategies, from providing tax incentives, to expanding the talent pool and service packages for family offices, to promoting the development of Hong Kong Charity Centres. Recently, we announced a new “Capital Investor Entry Plan” and clarified the implementation rules for the optimization of “Cross-border Wealth Management Connect”. These measures will drive more ultra-high net worth individuals and their capital to settle in Hong Kong. In the future, we will continue to vigorously promote these aspects and introduce new measures in due course.

Editor/jayden