The Desire By Chinese Investors Seeking Investments Abroad Is Driving Wealth Inflows Into Hong Kong


06/17/2024



Wealthy Chinese are resuming their purchases of Hong Kong investment goods including insurance and high-yield time deposits as a way to protect their money from a potential decline in the country's economy and real estate market as well as a depreciating currency.
 
The trend started to show last year, but according to Hong Kong wealth managers, it has picked up speed recently since China loosened investment regulations for the "wealth connect" project in February.
 
Financial businesses in Hong Kong are racing to take advantage of this, and it should help the city regain its reputation as a centre of wealth, which has been damaged recently by pro-democracy demonstrations, Beijing's tighter control, and geopolitical concerns.
 
These elements have encouraged investors and wealth managers to enter or grow in Singapore, a competing country.
 
"There are about 45 million affluent individuals in China, and increasingly they want more international exposure, education, and protection," said Maggie Ng, HSBC's Hong Kong head of wealth and personal banking.
 
"There is an increasing demand to manage wealth outside of China."
 
Introduced in late 2021, 'wealth connect' permits citizens of the two offshore centers—Hong Kong and Macau—as well as nine cities in the southern province of Guangdong, which borders Hong Kong, to purchase investment products from banks in those two locations. This is the second-largest economy in the world.
 
According to figures from the Chinese central bank, mainland investors' investments into Hong Kong and Macau under the scheme reached a record monthly high of 13 billion yuan ($1.8 billion) in March, up nearly eight times from February.
 
The Nasdaq gained almost 0.1 percent, while the Dow and S&P 500 also saw little declines.
 
The statistics indicated that while inflows increased by 70.5% to 22.3 billion yuan in April compared to the previous month, residents of Hong Kong and Macau invested just 14 million yuan in April, a relatively constant amount since the program's inception.
 
According to Ng, HSBC, a prominent wealth manager in Hong Kong, witnessed a threefold increase in new account openings in the city in 2023 compared to the pre-COVID level in 2019, primarily from Chinese mainland retail wealth customers.
 
She stated that the first quarter of this year had maintained the excellent trend, but she would not provide specifics.
 
Executives at global wealth managers say that in addition to the general wealthy who are using the cross-border investment channels, super rich individuals from China and Southeast Asia are also looking at their choices in Hong Kong.
 
"We're talking about an 85% increase if we look at the inquires (from potential family office clients) that we got last year versus the previous year," said L.H. Koh, head of UBS's global family and institutional wealth APAC.
 
He stated that the trend has persisted this year and that more than 60% of the queries are about Chinese clients setting up family office-style organisations in Hong Kong.
 
Although individuals are only permitted to send a maximum of $50,000 annually due to strict capital restrictions in China, outflows have been boosted by the trebling of the investment ceiling to 3 million yuan via the 'wealth link' scheme in February.
 
Since the investments under the plan must eventually be returned back to China, China is probably less concerned about outflows.
 
According to industry officials, wealth managers in Hong Kong are pressuring the government to further loosen the investment programme in order to accommodate the demand of wealthier customers to transfer bigger amounts of money to Hong Kong.
 
The de-facto central bank of the city, the Hong Kong Monetary Authority, declared that it will "continue to explore further enhancement measures in due course, taking into account the industry's feedback as appropriate".
 
As part of the wealth link plan, some banks in Hong Kong have started to offer interest rates on short-term term deposits as high as 10% annually, in an attempt to capitalise on the momentum. By comparison, mainland banks only offer interest rates of around 2% annually.
 
Along with banks, insurers in Hong Kong have experienced a spike in demand from mainland clients since the removal of border obstacles erected in the early months of 2023 in an effort to stop the spread of COVID-19.
 
According to Horace Yep, head of Citigroup's private banking for the Greater Bay Area and Hong Kong, the bank experienced record numbers of new account openings in Hong Kong in 2023, and this year's trend stayed strong because of the demand from mainland Chinese customers.
 
Given that long-term bond rates have fallen to all-time lows, Chinese mainland investors have few alternatives for where to put their money at home, which contributes to the spike in demand.
 
China's currency is currently at its lowest level since 2008. Additionally, returns on real estate and investments have plummeted.
 
"Many mainland people are now sitting on cash," stated Ms. Wang, 51, the owner of an online company in Shenzhen. Her wagers on opaque financial products at home lost value following the demise of a major shadow bank in the latter part of last year.
 
Wang said that she has subsequently moved her funds to a mainland current account and is currently researching the "wealth connect" initiative.
 
(Source:www.reuters.com)