Hong Kong's reopening boosts optimism in wealth management

__LINK__Amy Lo is full of optimism after returning from a trip to Shenzhen, the commercial hub in China. After three years of tough Covid-19 regulations that left Hong Kong isolated and its economy in recession, the Hong Kong-based banker enjoyed her first trip to mainland China.

Now that [the border] is open. Lo, co-head of Asia Pacific Wealth Management at UBS – one of its most profitable divisions – says that she has received a number of requests for meeting.

Lo, who is also the head of UBS Hong Kong, has over 30 years' experience in the private bank sector. He says, aside from allowing clients to resume work trips, the lifting restrictions allows wealthy clients from the mainland China, South-East Asia, US and Europe to return.

Hong Kong was forced to follow

Beijing's zero-Covid

Last year, the economy of the territory was affected by a 3.5% contraction due to policies that involved one of the longest border closures in the world. The country also faced its worst Covid outbreak.

After Beijing's sudden U-turn regarding Covid curbs, it was only in February that the country reopened its borders to mainland China.

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The return to normal business has given Hong Kong a new lease of life, but it also re-ignited the competition between the city and its biggest regional rival, Singapore, to become Asia's financial center.

Southeast Asia stole a march over Hong Kong, reopening their doors to the rest of the world several months earlier. They also reported a 3.6% growth in their gross domestic product by 2022.

Other numbers also tell the same story. Singapore's airports have a high number of arrivals.

Back up 70% of their pre-pandemic level

Hong Kong's figure is just a little bit more than half of the 2019 figure.

Singapore is home to many Chinese billionaires

During the pandemic, some foreign banks

Moved to Relocate

Staff from Hong Kong have moved to the city.

Lo says that Hong Kong has a competitive advantage in wealth management because of its proximity to mainland China and its larger capital market than other regional counterparts. Hurun, an organization that tracks wealth in China, found nearly 138,000 households with a combined net worth exceeding 100mn yuan (14.5mn dollars) by 2022.

Singapore's population is expected to grow by 230,000 in 2022. __LINK__ahman/AFP through Getty Images

Hong Kong welcomed over a million tourists in February for the first month since 2020, though it is still only one quarter of its pre-pandemic numbers. __LINK__ik/Bloomberg

Hong Kong also leads in terms of stock exchange: its bourse, which has a total market capitalisation of over $4.5tn and hosted 89 IPOs last year, is ahead of Singapore, with a market cap of $650bn in 2022, but only 15 new listings.

Singapore is far behind in terms of wealth. According to the UBS Global Billionaires Report released in December, Hong Kong had 67 millionaires -- people with a combined wealth of at least $1 billion US dollars. Singapore has 26 billionaires with $107bn. The number of billionaires and total wealth of billionaires in both countries decreased year-on-year.

Lo Chung Mau, Hong Kong's Health Secretary and author of Covid's policies, admits that the 'past couple years were difficult' for Hong Kong's wealth management industry due to Covid. She says that 'Hong Kong has returned' now that all travel restrictions have been lifted and the 945-day mask requirement has been scrapped.

Lo began her career as a banker in Hong Kong in the 1980s at a private institution. She then moved to UBS in the mid-1990s and held a number of senior positions, including head of the global family office, head of ultra high net worth, in Asia Pacific.

"I asked each client who returned to the office: Did you notice anything different?" She says. They said: "Oh, [Hong Kong] was very busy!" They're also surprised. They said, "Wow, this is normal. Back to normal now."

Hong Kong's Chief Executive, John Lee, has introduced incentives in order to attract family offices. __LINK__hihua/China News Service/VCG via Getty Images

John Lee, the man Beijing appointed as Hong Kong's Chief Executive in July of last year, is pushing for new incentives that will resuscitate its economy. New measures are being considered for family offices that manage assets of over $31mn, including an exemption from profits tax. A new investment migration scheme is also on the table to attract wealthy individuals. A promotional campaign entitled 'Hello Hong Kong,' offered cash vouchers and free tickets for travellers in an effort to lure tourists back.

Hong Kong is still appealing to some Chinese families for its proximity.

Some of these incentives have been effective. For the first time since 2020, the city welcomed over a million tourists in February. However, this is still only a quarter of what it was before the pandemic. Hong Kong hosted dozens of family offices last week from the Middle East and the US, as well as mainland China.

An 'invite-only' summit

All part of the government's push to get them to set up regional headquarters on the territory.

The city needs to be pushed forward. Singapore is expected to have 1,500 family offices at the end of 2022, with a tax incentive of $7.5mn for fund size. Hong Kong wants to attract at least 200 family offices to expand in the city or to set up shop by 2025.

Lo says that both Hong Kong, as well as Singapore, are "important hubs" in Asia and that their growth doesn't have to be 'at each other's expense'. She continues: "Hong Kong is still appealing, especially to some Chinese families because of its proximity."

Lo says that as both places reopen, 'it creates a level playing ground'. Hong Kong is the gateway to mainland China while Singapore offers investment opportunities in south-east Asia.

According to a KPMG report and the Private Wealth Management Association of Hong Kong last year, approximately 40% of assets managed in Hong Kong’s private wealth industry come from the mainland China. This is up from around 35% in 2019. The survey surveyed 36 financial organizations and over 200 wealthy clients from the city.

Tourists at Hong Kong's Harbour Front. Recently, the city ran a campaign called Hello Hong Kong to bring back visitors. __LINK__arks/AFP through Getty Images

Lo says that this gives the industry a competitive advantage over Singapore in the future, since the mainland Chinese market is 'the largest growth opportunity' for the industry.

Lo admits that some individuals with high net worth are concerned about geopolitical tensions. Hong Kong has clamped down on dissidents after Beijing imposed a national-security law in response to the 2019 protests. Financial services executives are concerned that opposition leaders, such as Jimmy Lai, a media tycoon who has been vocal in criticizing the Chinese Communist Party and other business figures have been arrested.

The national security law is causing anxiety. Yenn Woong, an entrepreneur, said: 'I don't believe any of them have given up on Hong Kong.

Speaking to the FT a couple of months ago

She said that amongst the wealthy people she knew, "everyone may have set up second bases or backup plans".

The uncertainty surrounding the financial stability of the city has also been created by the unease in the Taiwan Strait due to ongoing US-China tensions.

Singapore is a much more stable place, despite its low-key attitude towards the geopolitical climate. Lo admits to the challenges that lie ahead, such as the tensions between the US and China, but also that the 'geopolitical volatility' will continue in the short-term. She adds, however: "If you take a closer look, this isn't just a local issue." You also have the Ukraine situation right?

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She argues that Hong Kong's history has shown it to be very resilient. We had SARS and the 1997 [handover from Britain to China] as well as similar types of tensions in the past.

The global financial turmoil caused by the collapse of Silicon Valley Bank, and UBS's takeover of Credit Suisse in an emergency situation has added to this.

Lo's advice to wealthy clients is simple: diversify geographically as well as by asset class. She says that family offices are increasingly interested in alternative investments such as commodities and hedge funds.

Lo says that despite the collapse FTX, interest in virtual assets will 'not go away' among younger clients. Asset allocation is still limited to cryptocurrencies.

After the Covid merger, many clients, particularly younger people from wealthy families, are increasingly interested in investing more in ESG and contributing more to philanthropy.

Lo says that competition for talent is a challenge. Singapore's workforce is expected to grow by 230,000 workers by 2022 according to government data. Hong Kong, on the other hand, has lost 140,000 employees in the last two years.

Lo says that during the pandemic a "small number" of UBS Hong Kong employees relocated to Singapore and other places. Last year, the branch experienced a net increase in team size. This included in wealth management. Lo claims that the bank has been "selectively recruiting."

Lo says it is difficult to recruit experienced staff with knowledge of sustainable finance. She says that there is not enough ESG talent in the region.

Lo is hoping to recruit from the vast pool of talent that exists in Europe where ESG has been around for a long time. However, he acknowledges this may be difficult.

She believes, however, that in the future, the expansion of the business in Asia will provide opportunities for colleagues and recruits to come from Europe and other places. She said: "When the soil here is fertile people will come to farm."

This article is a part of

FT Wealth

A section that provides in-depth coverage on philanthropy and entrepreneurs as well as family offices as well as impact and alternative investment