Hong Kong Funds See $5 Billion in Outflows

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Bank of England says unrest if fueling capital flight

Hong Kong capital flight may have hit as much as $5 billion for investment funds in 2019.

The figure comes from the Bank of England, which released its Financial Stability Report on Monday. Since April, when the Hong Kong riots began, investment funds have raised alarms about the impact on both the local economy and their ability to perform. That figure – $5 billion – represents roughly 1.25% of the region’s GDP.

“These political tensions pose risks, given Hong Kong’s position as a major financial center,” the report said.

Hong Kong Capital Flight to Continue

The unrest in Hong Kong began earlier this year. The city’s government pushed forward a bill that would have allowed the extradition of citizens to Mainland China. Protestors instantly clashed with police. As unrest swelled, the region saw a decline in consumer spending. Hong Kong fell into a recession for the first time since the Great Financial Crisis.

The Bank of England has remained quite attentive to Hong Kong given Great Britain’s historical connection. It also pays close attention because HSBC and Standard Chartered are top-tier banks in the region. The Bank of England has conducted stress tests for these and other banks in the region. The banks would survive a model that saw real estate prices decline by 50% while GDP falls by nearly 8%.

Other Nations Move to Acquire Capital

The Bank of England isn’t the only group paying attention to Hong Kong capital flight.

As we noted last month, Tokyo has been actively trying to recruit Hong Kong-based hedge funds to move to Japan. The city has sent representatives to pitch Japan as a stable environment for money managers. Tokyo, however, finds itself competing against nearby Singapore – which provides slightly better tax policies for fund managers.

 

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May 21, 2020

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