Despite asset market pressures, Hong Kong remains an “ideal option” for international investment, says finance chief ahead of Davos

“However, it is also the case that investment opportunities have become more attractive and many funds are waiting for opportunities to look for investment opportunities.”

Finance Minister Paul Chan said overall deposit growth was expected to reach 5 percent last year. Photo: Dickson Lee

In the first 11 months of 2023, total deposits reached 16 trillion Hong Kong dollars (US$2.04 trillion), an increase of 4.1 percent year-on-year, with Hong Kong dollar deposits increasing year-on-year HK$7.6 trillion rose 1.7 percent, Chan added.

Together with the preliminary figures from December, the overall growth in deposits is expected to reach 5 percent last year, the minister said.

Chan also pointed out that HK$250 billion entered the Hong Kong market last year through the Southbound Stock Connect program.

“The numbers reflect that funds are still in a state of net inflow between entry and exit,” he said.

The Stock Connect program, which connects Hong Kong's stock exchanges with those of Shanghai and Shenzhen, allows investors in each location to trade on each other's stock exchanges. The South Link allows mainland investors to buy and sell eligible stocks listed on the Hong Kong Stock Exchange.

Chan's upbeat assessment comes amid a four-year slump in the city's stock market and a general economic malaise despite earlier hopes of a post-pandemic recovery.

According to the year-end report, the Hang Seng Index fell by about 13.8 percent in 2023, marking the fourth consecutive year of decline. It also had its worst start to the year since 2016 as a slowdown in growth in mainland China and a longer-than-expected tightening of monetary policy in the U.S. continued to weigh on sentiment.

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Property prices have also fallen to their lowest level in seven years, about 20.6 percent below the market peak in September 2021, as the city's slowing economy and high interest rates suppress demand.

However, Chan said international investors were looking for the “lowest cost return opportunities” and were therefore not focusing on “past numbers” but rather on “potential for future growth”.

“Many international investors familiar with the Hong Kong market agree that the city is one of the most ideal options,” he said.

The finance chief added that Hong Kong's wealth management sector had “huge advantages”, pointing to a 2023 report by the US-based Boston Consulting Group that estimated the city would see an annual growth rate of 7,000 in the industry between 2022 and 2027. 6 percent will be recorded.

He also highlighted efforts to diversify the city's economy, including “vigorously promoting” the innovation and technology sectors, including in artificial intelligence, data science and biomedicine.

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Gary Ng Cheuk-yan, senior economist at Natixis Corporate and Investment Bank, said that while the net inflow was a “positive sign,” the numbers were partly due to the “growth effect” of high interest rates in Hong Kong, making the dollar more attractive to some investors .

“This is just one of the important aspects when we assess investor sentiment in Hong Kong,” Ng said. “We can’t just look at it and say everything is fine.”

He pointed to the poor performance of broader financial markets and property prices as other key factors, describing investor sentiment in these areas as “clearly not that good”.

“There are still some challenges,” he said.

But Terence Chong Tai-leung, executive director of the Lau Chor Tak Institute of Global Economics and Finance at the Chinese University of Hong Kong, said the data showed capital remained in the city.

Chong added that he expected real estate and stock markets to recover once the U.S. began cutting interest rates, and that the city would benefit from increased investment from Southeast Asia and the Middle East.

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“We are still very confident about Hong Kong’s future as a financial center,” he said.

In his blog, Chan said he would present and promote the city's developments at the Davos summit this week.

The annual event brings together officials, business leaders and civil society groups from around the world. This year's meeting will take place from January 15th to 19th under the theme “Rebuilding Trust”.

“I hope everyone will strengthen cooperation and achieve better economic growth together,” Chan said.

Minister of Trade and Economic Development Algernon Yau Ying-wah will attend parts of the summit, along with Airport Authority Chairman Jack So Chak-kwong, Hong Kong Exchanges and Clearing Chairman Laura Cha Shih May-lung, and the CEO of MTR Corporation, Jacob Kam Chak-pui.