Asset Management

Hong Kong’s asset management sector is continuously evolving, as companies seek to respond to systemic changes in the industry, while moving to take advantage of new opportunities.  As new competitive forces emerge in the region, Hong Kong must keep ahead of these fast moving dynamics in order to maintain its position as a leading fund management hub.

Ongoing challenges for Hong Kong companies include regulatory change, fee pressures and demographic change, exacerbated by global macroeconomic uncertainty in the wake of the policy response to the Covid 19 pandemic.  At the same time, there will be considerable potential for launching new, targeted products and developing an increased client base.

Technology will be a major driver of change for the industry, as investors demand an increasingly digital user experience.  Asset managers may need to form new alliances with partners and intermediaries to understand clients’ needs better and develop tools to serve them.  There is also likely to be closer collaboration across the industry to develop expertise in upcoming areas, such as ESG and impact investing.

Hong Kong is uniquely positioned as the bridge between China’s burgeoning markets and the international capital infrastructure.  As China’s asset management industry opens up, in particular with further development of the sector in the Greater Bay Area, there is likely to be considerable opportunity for Hong Kong and international asset managers to broaden their client scope and grow their assets under management.  New initiatives such as Wealth Management Connect in the Greater Bay Area will create significant cross border flows between China and Hong Kong.

The Asian Development Bank estimates that it will cost approximately US$1.7 trillion per year to 2030 to maintain economic growth in Asia, but at the same time to develop sustainably and respond to the challenges of climate change. Governments can directly finance only a small portion of this development, so there is a huge funding gap to be met by the private sector and through the international capital markets. 

There has been considerable momentum behind green finance over the past decade, establishing it firmly as a mainstream activity that is influencing financial sector development in many countries. Asian financial centres are already competing to be the green finance hub for the region. Hong Kong, which houses the most mature capital market in Asia, as well as a concentration of sophisticated financial expertise, is a logical choice to be a leader in this rapidly evolving area. 

To establish a clear competitive advantage calls for a dedicated focus on building the expertise required to fund low carbon technologies and green businesses, together with commitment from both government and private sector to allocate resources to these sectors. Developing this market opportunity will require actions to increase local capabilities with green industries, identify new business pipelines and establish Hong Kong as the centre of innovation for designing and executing bankable transactions. 

Virtual currencies have developed rapidly as a payment mechanism, seeing a significant rise in the number of currencies, the number of transactions and market capitalisation.  Digital transactions, underpinned by distributive ledger technology, can offer greater efficiency and lower costs than traditional alternatives.  

In recent years, central banks have begun exploring the potential of virtual currencies by experimenting with so called Central Bank Digital Currencies (CBDCs), which would be issued by the state and backed by the government.  CBDCs could be restricted to settlement flows or even targeted at retail transactions in a country.  China has been one of the pioneers in the development of CBDCs, establishing a Digital Currency Research Institute and subsequently launching a pilot programme in four major cities in 2020.

In Hong Kong, regulators have set out a framework for virtual asset trading platforms and are considering a new licencing regime for virtual asset service providers.  As the local market matures, opportunities will be created for businesses in Hong Kong and increasingly cross border activity.  Collaboration between financial institutions, data providers and technology companies will drive the evolution of Hong Kong’s virtual currency sector.