Hong Kong could benefit as Brexit forces recalibration of London’s role as a financial capital
Hong Kong could fill the void created by a more insular London in the areas of yuan trading, market access to China and HSBC’s global headquarters
Brexit may well be one of the most important black swans in recent memory, with US$2 trillion erased from global markets on Friday alone, but things may not be so bad, at least not from a Hong Kong point of view.
From an international competition perspective, London is a major competitor to Hong Kong as a gateway for Europe. For example, London is the second largest offshore yuan trading centre after Hong Kong.
London is also the second major market in talks about establishing a stock connect scheme with the Shanghai Stock Exchange. Hong Kong and Shanghai established a link in 2014.
However, in the wake of the pro-Brexit referendum result, it’s clear the UK will gradually set about the task of negotiating an exit from the European Union, which draws into question London’s role as a platform for investment products such as the sale of dim sum bonds to European investors. Could some of these deals be about to shift back to Hong Kong?
The stock connect between Hong Kong and Shenzhen could be announced sometime this week, ahead of the July 1st handover anniversary, which would help to shore up Hong Kong linkages with mainland Chinese bourses. The net effect is that Hong Kong stands to gains in terms of its status as a gateway to China.
There also repercussions for London’s leading role as a fund management centre. Funds issued in the City can be sold in European Union. While it is not clear how the UK will negotiate its exit from the EU, it’s likely that some fund houses will set up offices in other financial hubs such Dublin. Hong Kong could be another choice as we already enjoy a mutual recognition scheme with mainland China such that funds domiciled in Hong Kong that meet certain criteria can be marketed to millions of potential investors on the mainland.
Then there is HSBC, a favourite stock for many Hong Kong investors.
The bank in February decided not to move its headquarters back to Hong Kong, opting instead to remain in London.
But now, in light of the pro-Brexit result, the board of directors of HSBC should reassess the situation to compare the merits of the two cities. As HSBC has always considered Hong Kong as a stepping stone to the mainland China and as Hong Kong and Asia is its major profit contributors, why not consider moving its headquarters back to Hong Kong?
Many brokers and investors have discussed such a possibility.
Never say never. A week ago, we all believed that the referendum result was likely to be in favour of remain, instead of leave. For HSBC, Hong Kong investors will always welcome you.