BBH’s Global Regulatory and Market Strategists Carla Jane Findlay-Dons and Adrian Whelan recently traveled to Hong Kong and Beijing to discuss market hot topics with local clients and industry leaders. Adrian had the honour of delivering a keynote speech at the Asset Management Association of China’s International Business Committees Conference and they also managed to squeeze in a little fun. Here, in Part 1 of a 4-part series, he shares his personal China experience.
Heading to Asia from Dublin (via Dubai) included 17 hours of flight time, 6 vacuum packed plane meals, 13 hours of dubious quality movies, and two hours of circling due to seasonal lightning storms. I finally landed at Hong Kong International Airport, decamped immediately to my hotel and admired the water views from my 81st floor room. A trip to Hong Kong is always worth the effort. As a conduit to the Greater China region, Hong Kong is instantly comfortable to visitors – many of our readers will know that while Hong Kong is a very special city, it is much like any large cosmopolitan metropolis – skyscrapers set on the water, ferries perpetually traveling across and back, swarms of taxis beeping through busy narrow streets, and a visual gluttony of brands and traffic. Hong Kong is an assault on the senses in the best sense of the phrase.
After sleeping off my jet lag, downing a few espressos and some Pringles from the minibar (old habits die hard), the next day I was joined at breakfast (more espressos) by a member of the Irish consulate and a Londoner now working in the Hong Kong asset management industry. We shared our thoughts on the most critical areas of focus and opportunity for the local industry. I was excited to hear that their views matched my own. While I have been studying and writing about regulatory developments in Greater China for years, we all know there is nothing like incorporating the local perspective.
Both of my breakfast companions agreed that ETFs are, and for the foreseeable future will be, the product of choice in Hong Kong as many of their attractive characteristics closely match the barter and trading culture of Hong Kong. ETFs generally incorporate technology in their delivery, can be bought and sold freely with intra-day liquidity and provide cost effective investment exposure to multiple asset classes making them highly desired in Hong Kong (and everywhere else) currently.
My discussions confirmed that the hotly anticipated addition of ETFs to the Stock Connect program is an everyday topic in the region. A decision remains whether Hong Kong listed ETFs will ultimately be considered “stocks” or mutual funds. If deemed stocks, they become eligible for the program, and that would represent a game changing moment. Per my asset manager breakfast companion, “It will be absolutely massive, quickly.” ETFs’ inclusion in the Stock Connect program would allow Mainland China investors to invest in overseas assets through ETFs listed in Hong Kong, and for international investors to access ETFs listed in the Mainland. According to our survey of professional ETF investors, almost 90 percent of Mainland China respondents said they plan to invest in Hong Kong ETFs after ETF Connect is launched. Hong Kong remains hopeful that regulators will announce ETF Connect before the end of the year.
Two other key opportunities, while likely not as impactful as ETF Connect, are ESG which continues to grow in importance in the region matching an obvious global trend, and the recent adoption of the open-ended fund companies (OFCs), which is considered a useful addition to the Hong Kong toolkit.
We also talked of the neighbouring city of Shenzhen, China. Sitting just 17 kilometres north of Hong Kong, Shenzhen is a designated technology and innovation hub – basically the Silicon Valley of Greater China. It is said that everything there is done “using QR codes and face recognition.” It is evident that Hong Kong will continually look to leverage its proximity to Shenzhen to ensure it is at the bleeding edge of technology advancements as it increases its relevance as a global financial centre.
Super Prospects Await in Australia?
That afternoon, I had the opportunity to meet with several asset manager clients. Here I got a greater sense of a story I had been following for some time relating to an ongoing review of the Australian market.
With one of the largest and most lauded private pension systems (superannuation schemes) in the world (estimated at US $2 trillion), Australia is expected to present great future opportunity for asset managers in both Hong Kong and China.
Recently, a commissioned report rocked the superannuation after it found that certain malpractices, including over charging, conflicts of interest, and mediocre performance, were rife across the sector. The final report won’t be published until February 2019, but many expect it will demand that the entire system is opened to increased competition and transparency by facilitating entry of foreign asset managers and product manufacturers into the Australian market. We expect the global asset managers with bases in Hong Kong or China could benefit from gaining access to this previously unobtainable Australian pension treasure.
Excited for Day 2
After a full day of meetings, I was buzzing with local intel and feeling excited about the many opportunities available to asset managers in Hong Kong, but also quite ready for bed and a replenished stock of mini-bar Pringles. The famous Mongkok Ladies street markets would have to wait until tomorrow.