Bye to the West? Hong Kong Monetary Authority eyes Middle East bonds and investment, banks on Gulf states’ need to diversify risk amid tensions

Deputy CEO of city’s de facto central bank cites exchanges on recent trip to region, says there is keen interest in financial hub
He touts Hong Kong’s fertile, mature ground for bonds, and standing as best location for foreign businesses eyeing mainland China investment

Hong Kong economy

Natalie Wong

Published: 7:00am, 13 Feb 2023

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The Hong Kong Monetary Authority (HKMA) is ramping up efforts to lure businesses from the Middle East to issue local bonds and invest in mainland China through the city, with its deputy head saying Gulf state operators have a need to diversify from the West amid geopolitical tensions.

“We have all kinds of investment vehicles here. What we need to do now is to catch their eyes. They can come to Hong Kong, not necessarily Europe or the US,” Darryl Chan Wai-man, deputy chief executive of Hong Kong’s de facto central bank, told the Post in Dubai as he took part in a city delegation’s trip to the Middle East.

Darryl Chan, deputy HKMA CEO. Photo: Natalie Wong

Chief Executive John Lee Ka-chiu said in an Op-Ed article for the Post after his return from the week-long visit that he was confident the tour “heralded better times ahead for the economy, and the people of Hong Kong”.

“My takeaway message was clear and compelling: Hong Kong is their one-stop Belt and Road centre for capital formation and for all the professional services they need to plan, build and manage their Belt and Road future,” he wrote.

The city leader explained that several Middle East companies and funds were looking for investment opportunities in the Greater Bay Area, adding: “Hong Kong can make that happen.”

Hong Kong leader set to visit Greater Bay Area ‘very soon’ in Gulf trip follow-up

He suggested that Saudi Arabia and United Arab Emirates (UAE) businesses were eager to learn more about the Greater Bay Area, saying they could connect the wealth funds with the right partners.

Lee also announced during the visit that there would be another trip by the HKMA later this year to further connect Hong Kong’s financial delegates to Gulf counterparts.

Chan, citing exchanges with business and sovereign fund representatives in Saudi Arabia and the UAE on his visit with Lee, said he noted stark changes in the risk appetite there.

“In the past, not many in the Middle East considered Hong Kong [for arranging the issuance of bonds]. But from some Hong Kong delegates who managed to meet potential clients, including those from sovereign funds, many [in the Gulf region] who preferred the European and American markets are now in need to diversify risk,” he said.

“They are expected to boost investment in Asia.”

Chief Executive John Lee (second from left) and Saudi Minister of Investment Khalid Al-Falih (second from right) witness the exchange of an MOU at a forum in Riyadh. Photo: HKEX

Lee’s delegation visited some of the Middle East’s major sovereign wealth funds including Mubadala Investment Company in the UAE and the Public Investment Fund in Saudi Arabia.

Chan said the HKMA had been ramping up efforts to further promote Hong Kong as a prime location for Gulf businesses and sovereign funds to arrange the issuance of international bonds and green bonds, as well as for finance and investment.

“They showed interest but did not have sufficient understanding. We hope more frequent exchanges will help them capitalise on the benefits of the Hong Kong market,” he said.

Hong Kong leader meets head of UAE sovereign wealth fund during Middle East trip

He added he had highlighted Hong Kong’s fertile, mature ground for bonds, and its standing as the best location for overseas businesses eyeing the mainland.

“We have a very wide network of investors, which can help them approach investors in Asia, including mainland China, effectively,” said Chan, who took up the HKMA role last November, overseeing monetary management, research and external departments.

John Lee jetting off to Middle East, Southeast Asia no fix for Hong Kong: experts

He said so-called dim sum bond offerings, or offshore yuan-denominated debt issued by mainland companies or the government and sold in Hong Kong, would also be further promoted across the Arabian peninsula, as well as the “Southbound Scheme”, a channel allowing Chinese firms qualified as primary dealers to trade foreign bonds via Hong Kong since 2021.

Hong Kong is a leading bond hub in Asia, ranking third in terms of issuance in Asia excluding Japan, after the mainland and South Korea. In 2021, around a third of Asia’s international green and sustainable bond issuances were arranged in Hong Kong, making the city the top centre for such bonds.

John Lee with Saudi business leaders. Photo: Handout

In the Gulf Cooperation Council economies, the market for green and sustainable bonds and sukuk, a sharia-compliant bond-like instrument, set a record of US$8.5 billion in 15 deals last year amid increased participation from banks and government-related entities, according to data from Bloomberg’s Capital Markets League Tables.

Saudi Arabia was the leading issuer within the region, accounting for more than half of the total volume, with the UAE accounting for the remaining issue volume, it said.

Hong Kong authorities have introduced grant schemes and tax incentives to bolster bond issuances. For example, the Pilot Bond Grant Scheme was rolled out in 2018, and was enhanced as the Green and Sustainable Finance Grant Scheme in 2021, to provide financial support for issuance of bonds, including Hong Kong dollar bonds, in Hong Kong.