Hong Kong to leverage role as international financial hub to lure Middle East investors
Hong Kong is planning to establish an Islamic bond market to tap investors in the Middle East and elsewhere who may seek opportunities in the mainland market, Financial Secretary John Tsang Chun-wah said.
'The Islamic financial market is worth an estimated US$1 trillion and is expected to grow by 15 per cent annually,' Mr Tsang said yesterday at an investment conference.
Islamic bonds would have to comply with Shariah or Islamic law. They do not pay interest, which is banned as usury under Islamic law, and are structured as profit-sharing or rental agreements underpinned by physical assets.
Some bankers, however, have cast doubts on the wisdom of Mr Tsang's suggestion, saying that Hong Kong was at a disadvantage compared with Singapore, Malaysia and even London, which already have established Islamic bond markets.
Malaysia has the world's largest Islamic bond market, worth about US$47 billion, or two-thirds of all such bonds worldwide. Singapore and Indonesia also have large Islamic communities and have a better understanding of the culture.
'At least the government [of Hong Kong] can take the lead and give incentives for the development of such a market,' said a banker who asked not to be named. 'Otherwise, it's not easy for the Hong Kong financial community to develop an Islamic bond market.'
Mr Tsang, however, said Hong Kong, as the mainland's international financial centre, was in a unique position to attract investment from the Middle East and Islamic investors around the globe.
He said there were many investors in the Middle East who were seeking opportunities in the mainland market, and Hong Kong was in the best position to act as the most effective intermediary for structuring and marketing Islamic investment products to meet the needs of mainland enterprises and Middle East investors.
Mr Tsang said Islamic investment was an important element of the global financial system. For Hong Kong to be a major international financial centre, Islamic finance must be in its portfolio of products and services.
Mr Tsang said the city's financial regulators would look at ways to develop a local Islamic bond market under existing financial, legal and regulatory regimes. 'Reconciling our system of modern finance with Islamic finance will be a key objective.'
Winnie Wong Wing-sze, a vice-president at Bank of New York, said Hong Kong had advantages in developing an Islamic bond market, despite the fact that there were other financial centres that had developed the market.
Ms Wong said Malaysia's Islamic bond market complied with that country's laws, but that might not be applicable to investors in the Middle East and other countries.
She said there were many investment banks with experience in bond origination, documentation and distribution. She also noted that many euro and global bonds had originated in Hong Kong, so it would not be difficult for local financial experts to structure bonds for Islamic and non-Islamic investors.
However, Ms Wong was concerned about whether there would be enough qualified bond issuers.
She noted that many companies, such those in the alcohol or tobacco industries, might not be qualified to issue bonds for Islamic investors.