Featured Topic: Hong Kong

Hong Kong is, today, one of the top financial markets in the world. In 2011, they took the number one spot on the World Economic Forum’s 2011 index of financial market development. And they were the first Asian financial center ever to do so.

The report looks at 60 of the world’s leading financial systems with over 100 variables evaluated. Hong Kong jumped from its previous fourth place status with concerns swirling about the financial stability in the United States and lower scores in the UK for their IPO activity. Certainly, this is great news for business people in the area. This includes entrepreneurs like Daniel Lam, CEOs like Andrew Brandler, and hedge fund managers like Seth Fischer, Hong Kong business people who will all benefit from this news.

The top 10 list remained relatively unchanged, other than the dramatic shift for Hong Kong; although Belgium did fall out of the top 10. It was replaced by Norway. The top ten, in order included:

1. Hong Kong

2. United States

3. United Kingdom

4. Singapore

5. Australia

6. Canada

7. Netherlands

8. Japan

9. Switzerland

10. Norway

As Kevin Steinberg, COO of World Economic Forum USA said in a statement that accompanied the report, “Hong Kong’s ascent to the top of our index marks a major milestone, the first time in the report’s history that the United Kingdom or the US didn’t come out on top.”

It seems like Asia may be encountering a few too many IBs around at the moment, (15 altogether – nine bank-backed and six non-bank backed). But which ones are doing really well? Apparently the CIMB group has a lot to say for itself, having been described as “ambitious” in its attempts at becoming a “leading universal bank in South- East Asia, providing a full array of banking services ranging from savings accounts to large corporate transactions for fund-raising.”

Going Global

What initially prompted CIMB to become global occurred in 2005 when it acquired RM500mil of GK Goh Holdings Ltd, which apparently gave the bank access to markets in the region, as well as London. Further to that, the bank purchased the Bumiptura Commerce Bank, Southern Bank, PT Bank Niaga and Bank Thai. Acquiring a “strong balance sheet” led CIMB to greater places.

IB Growth

There has been other regional growth for some of the non-bank IBs too. For example, OSK Investment Bank has established various advancement strategies while working hard on putting itself into the “smaller and mid-cap market as well as research capabilities.” Much of its profit hails from Asia, with 30 percent of its “overseas pre-tax profit” hailing from Singapore. Currently the bank is looking to establish its presence in Thailand and Cambodia. In the former country it is doing this with the purchase of BFIT Securities public Co. and in the latter it now boasts “a full-fledged commercial bank with nine branches as well as license for stockbroking and corporate finance.” OSK IB sees the necessity now to pump up its “institutional equity capability.” If it does this successfully in Hong Kong, it will be well on its way to establishing a very solid presence throughout the Asian region since it sees this country as “one of the largest financial gateways.”

There has been significant restructuring in OSK as well as new employees in an attempt to go further in its markets and develop a presence in Europe while “exposing the Asian markets to the Europeans.” As well the company is looking into what they can do in South Korea, Taiwan and China.

Stable Singapore Stakes

Is it true that things (financially-speaking) are that good in Singapore these days? Is that what is making the area so attractive for hedge funds, financiers and investors? Indeed the answer should be a resounding yes. The country is for sure facilitating things for these financiers as “setting up shop” is now deemed as much easier in Singapore than in any other Asian city.

If you just take a look at Hong Kong you will see just how much harder it is for such financiers to work. Indeed, managers of hedge funds alone are doing it tough, being forced to engage in the “same licensing requirements as mutual-fund managers.” Small funds in Singapore will be able to continue operating without having a license at all. Since it is today Singapore and Hong Kong which are the countries that have the most operation of hedge funds, of course these financiers would choose the former over the latter.

Seductive Singapore Taxes

The taxes haven’t always been so attractive in Singapore. But today they are, given what is going on in the UK. Currently the highest taxes for individuals reaches 20 percent in Singapore but the UK recently put their top rate up to a staggering 50 percent. In addition, the whole of Europe – as well as America – in general works on “tougher rules.”

So it makes sense that hedge funds in Singapore saw a significant development, reaching $48bn at the end of 2009 which was a jump of $10bn from just four years earlier. In 2001 there were only 20 hedge funds; two years ago that figure had escalated to 320 hedge fund managers. All predictors are pointing to a continued hedge fund interest looking to “tap Asia as a source of funds as well as a source of excess returns,” over the next year.

Singapore Squeeze?

While this is great for the country, is it so good for the people and the businesses already in existence there? Apparently there is the fear that “the increasing number of global hedge funds is unlikely to crowd out smaller Singapore-based managers.” There will however, be space for “large and niche players” as long as they keep adding “value to investors.” There is now more focus on “transparency and risk management by investors post-crisis,” also, which will lead to hedge fund managers around the world developing their “mid-bank office infrastructure.”

It’s great that Singapore is providing such an attractive environment for financiers around the world and that for sure will help the country’s economy. But at the same time, it has to ensure it looks after its own.

Are Asian Women Financially Savvy Today?

Years ago the answer for sure would have been a resounding “no.” But today things are somewhat different. It seems that women in Asia (especially those married, 30+, in the workforce) know their won from their yen and their level of competence is likely to increase further “especially among the younger generation.”

For example, women from Thailand topped financial planning (87) and investment (69.3) scores for financial literacy but Vietnamese women also did pretty well, scoring 70.1 overall, placing them in fourth place. There wasn’t much to sniff at with women from the Philippines either (who did extremely well in Financial Planning), but those from Korea and Japan could probably learn a lesson or two on how to get more financially in-the-know.

Survey Assesses Savvyness

It was the MasterCard Index of Financial Literacy that took a survey of these countries. The questions were posed to 24 markets around APMEA (Asia/Pacific Middle East Africa). It looked at three main areas: Basic Money Management (budgeting, savings and credit responsibility); Financial Planning (their understanding of financial products and services as well as ability to make long-term financial plans); Investment (understanding of risks and products associated with investments). In general, Asian women as a whole did best in Financial Planning.

In developed markets it was women from Australia and New Zealand who were most successful in their financial knowledge. Females from Singapore are pretty good at basic money management but were pretty clueless vis-à-vis anything to do with investments. But when looking at financial literacy, India and China don’t seem to be all that with it.

According to VP of Communications for Asia/Pacific, Middle East and Africa, MasterCard Worldwide, Georgette Tan, “this new MasterCard Index has certainly provided us with fresh insights to women’s aptitude for and knowledge of managing their finances. While it is encouraging to see that women across Asia/Pacific have some degree of financial literacy, it is also apparent that there is still work to be done to improve levels across the board.” This is important as complexities increase in the financial world resulting in a necessity for women to become “more financially confident and competent.” MasterCard also seeks to give more power to these women.

Asia’s economy is a bit of a mess.  Actually it's a  big mess.  And it doesn’t look like this situation is about to improve any time soon either.  Inflation looks set to continue; capital flows are extremely volatile.  But the fact that China has been trying to liberalize its currency exchange rate could be good news for economies in the region, enabling them to move away from trade settlement within the current global economic climate.  It’s a shame Pridiyathorn Devakula is somewhat removed from the political scene these days though.  Thailand’s previous Deputy Prime Minister is quite well-to-do these days.  His wife has a staggering Bt258 million to enjoy while their daughter isn’t too badly off either at Bt7 million.  Perhaps if the family shares some of its wealth it can pull the region out of its financial hole.

Yuan Goes International

But even if the Devakula family decides to keep their wealth to themselves (giving them near-billionaire status), the yuan need not suffer.  It seems like the government of China is moving toward the possibility of internationalizing this currency alongside the Euro and the dollar.  As well, plans are set for Hong Kong to become the traing center for yuan-denominated assets enabling foreign companies to “issue yuan-denominated assets in Hong Kong” which will also mean the Bank of China NY branch will be able to open yuan deposits.  The hope is that investment abroad will increase too.  As well, if they adopt Devakula’s idea of “co-operation among regional economies” to establish a benchmark currency, then the region’s economy could potentially peak.

 A Japanese airline (a conglomeration of All Nippon Airways and ANA) will begin low cost domestic flights in November and services to China next year.  According to the Civil Aviation Administration of China (CAAC) over 5 million passengers were transported during the Spring Festival through domestic carriers, organizing close to 40,000 flights to meet increased holiday travel demand.  Services will be expanded between Dalian in China’s Liaoning Province and Toyama, Japan to Beijing.  Turkish airlines has grown, as well as Air China, the latter which transported 102,500 tons of mail and cargo.  Hong Kong-based Cathay Pacific Airways – with its subsidiary Dragonair – last month transported 2.24 million passengers, 6.8 percent higher than last year.  China Southern Airlines and China Eastern Airlines likewise reported a significant increase in passenger transportation over the last year.  Spring Airlines will be using AsiaPay’s payment processing solution for its online flight booking, enabling clients to pay for tickets in local currencies.


In terms of airline partnerships, news is that first, China Harbor Engineering Company Ltd (CHEC, a subsidiary of China Communications Construction Company Ltd.) just clinched a US$1.22 billion deal for the construction of a new international airport in Khartoum, Sudan.  Second, China Telecom Corporation Limited has entered into a strategic partnership with Hainan Airlines potentially enabling the latter to be “China’s first air carrier to provide in-flight phone calls and Internet.” New services will be added to Italian airlines too and a Tibet-based air carrier (Tibet Airlines) will be the first air-carrier in the region and will start its operation launching a Lhasa-Beijing service.
 

News from solar power is that China Solar Energy Holdings Ltd. will be acquiring domestic thin-film solar photovoltaic module maker Target Samoa for US$45 million in stock and convertible notes enabling the addition of amorphous silicon thin-film module production.  Taiwanese Neo Solar Power Corp (NSP) said its revenues last month escalated over 150 percent and this trend looks set to improve.  Volthaus GmbH (German solar power developer) is due to receive 20 MWp of solar modules in an agreement with EGing Photovoltaic Technology (Chinese module maker).  There is good news in the solar cell market too in the country, with the use of Maple solar cell technology (broader and flatter silicon cells with fewer grain boundaries).


There is work on potential wind power projects via China Resource New Energy which recently stated it would put US$728 million to US$984 million in wind power developments in pursuit of 150 gigawatts of overall installed capacity by 2020.  A US company CleanTech Innovations informed of its striking a wind tower supply deal from power producer China Guodian.

 

Recent world events – New Zealand earthquake, Japan’s credit rating downgrade and continued Middle East and Libyan unrest – led to a significant drop in stock markets across Asia.  For example, South Korea’s Kospi, the Nikkei 225 stock and Hong Kong’s Hang Seng index all plummeted around 2 percent.  As well, Japan had trouble dealing with its huge debt following Moody’s Investors Service downgrading its outlook for the country’s credit rating, citing “increasing uncertainty” over Japan’s capacity to effectively deal with rising debt.  This doesn’t spell good news for the country which only last month had its sovereign debt rating cut by Standard & Poor.  Australia, China, Singapore and Taiwan are currently in the same boat vis-à-vis stock markets. The only good news for the region of late has been the increase in oil prices.

 

Stock markets and oil prices in Asia recently saw an increase, indicating the demand for the latter could be improving.  As well, makers of electronics increased between 0.9 and 2.8 percent in Tokyo.  IN Hong Kong the Hang Seng index rose 0.4 percent but South Korea’s Kospi index was “nearly flat.”  While Australia’s S&P/ASX200 slightly increased, BHP Billiton Ltd. Saw a hit of 1.8 percent which was a marked difference from the company’s claim of over 70 percent net profit increase from last July to December.  The Dow Jones industrial average encountered its second straight day of losses on Tuesday with the Dow falling 0.3 percent.  Nasdaq fell 0.5 percent as did Standard & Poor’s 500 index which dropped 0.3 percent.  On the New York Mercantile Exchange delivery increased 35 cents a barrel in electronic trading.
 

Smith Electric Vehicles owned by Tanfield Group is believed to be in advanced discussions with the Hong Kong government to provide the municipality with electric minibuses. It is known that Hong Kong has been actively pursuing electric vehicles for the city’s fleet.

Hong Kong suffers from intense air quality issues, so it is hoped that the mini-buses from Smith Electric Vehicles (if the deal goes through), will help to increase the air quality in the city. This latest deal comes after a series of previous deals between Smith Electric Vehicles and the Hong Kong Government, where the city bought 15 Smith all-electric vehicles in the past 18 months.

Smith Electric Vehicles has recently merged with its US partner on January 1 in a £9.74m deal.

The Smith Electric Vehicles division was bought by its US partner Smith Electric Vehicles US, which is represented by the investment bank in which the North-East firm held a 49 per cent stake. The Smith Electric Vehicles US named Wynston Hill Captial as its lead investment banker last year.  Corey Singman and Bruce Shalett are the Investment Bankers for Wynston Hill Capital in connection to Smith Electric Vehicles US.  The deal has still allowed Tanfield to hold the same percentage within the new, enlarged company.

renminbiIn expectation of the increasing value of China’s currency, Manulife is launching several renminbi-based financial/insurance plans in Hong Kong. During the last five years, the RMB has increased twenty five percent against the dollar. Meanwhile, with China’s approval, Hong Kong has become the major offshore center for China’s currency. From January to November 2010, Renminbi deposits increased by 240% to Rmb2.2 trillion which is $32.9 billion.

Manulife’s first plan is a single-premium savings insurance plan which matures in five years and provides capital security and guaranteed returns. The yearly return is 1.8% in renminbi, which will probably increase in Hong Kong dollars if the renminbi’s upward trend continued.

Wang Yu-Ming, of Hong Kong Manulife Asset Management, says that developing foreign renminbi trade is a major priority: “China is anticipating that the renminbi will become one of the world’s future reserve currencies, and that in and of itself should make investors pay attention.”