A long-standing and well-tested international financial centre
Macroeconomic factors such as an uncertain global economic outlook, volatile geopolitical situations and the “higher for longer” interest rate environment have inevitably suppressed Hong Kong’s financial market, hindering particularly the short-term performance of cash equities trading and fundraising through initial public offerings. Nevertheless, with a solid foundation, Hong Kong’s financial market has demonstrated resilience in the turbulent global environment and continued to register growth in a number of areas. We have weathered different economic cycles in the past, and we will navigate through the present one all the same. Actual figures enable one to see objectively that Hong Kong’s financial market is internationalised, comprehensive and growing in nature. The claim that Hong Kong has become “a relic of an international financial centre” is therefore totally unfounded. Hong Kong’s status as an international financial centre is like neither a tower nor a monument which can be brought down by pressure. Rather, it is achieved and underpinned by our unique position under “One Country, Two Systems”, the sustained efforts of the Government, regulators and industry players, as well as the recognition by international investors and financiers. We have the confidence, strength and capability to continue building an international financial centre with greater depth and breadth. I am going to give an account of the recent performance of Hong Kong’s financial market in various key areas, and let the figures speak for themselves.
Securities and futures market
As at end-October this year, the market capitalisation of our securities market totalled HK$30.8 trillion, a rebound of 17% from the HK$26.4 trillion recorded for the same period last year. On the development of products, thanks to the continuous increase in the turnover of exchange traded funds (ETFs) under the Southbound Scheme and a series of reforms to the microstructure of the market in recent years, the average daily turnover of ETFs for the first 10 months of this year reached HK$11.6 billion, a year-on-year increase of 25%. In respect of the derivatives market, the average daily number of derivative contracts traded during the same period amounted to over 1.35 million, a year-on-year increase of 7%, which bears further testimony to the strategic function of Hong Kong as a global risk management centre. As for the mutual access mechanism, the average daily turnover of the Northbound Bond Connect for the first three quarters of this year reached a record high of Renminbi (RMB) 40.5 billion, a year-on-year increase of 26%. Meanwhile, following the expansion of the scope of the Northbound Stock Connect in March this year, the average daily turnover for the second and third quarters of this year went over RMB 113 billion, up 17 % from the first quarter.
Asset and wealth management business
Although the assets under management (AUM) of Hong Kong declined by 14% to HK$30.5 trillion last year, it still slightly outran major market indices and recorded net fund inflows of HK$88 billion. Hong Kong has shown signs of turning a corner since the second half of last year, as can be seen from relevant figures. The AUM of Hong Kong-domiciled funds rebounded by 15% from the third quarter of last year to HK$1.3 trillion at end-June this year. Net fund inflows of HK$69 billion were recorded in the fourth quarter of last year and the first half of this year, an increase of over 300% from the net fund inflows of HK$17 billion for the first three quarters of last year. The number of firms licensed to carry out asset management in Hong Kong increased by 5% year on year and the total number of staff in the asset and wealth management business remained steady (with 54 322 practitioners). Overall, the AUM of Hong Kong’s asset and wealth management business saw sustained and robust growth of 143% over the last 10 years. According to a recent report by a credible market research firm, Hong Kong achieved the highest AUM growth rate among top booking centres from 2017 to 2022 with a compound average annual growth rate of 13%. Hong Kong is also well positioned to become the world’s largest booking centre by 2025.
Performance of the banking sector
Due to the increase in net interest income and income from investments held for trading, profits of retail banks recorded significant growth in the first half of this year. Specifically, the aggregate pre-tax operating profits of retail banks in the first half of this year increased by 120.5% over the same period last year, and the return on assets also rose significantly to 1.15% in the first half of this year. In the first nine months of this year, total deposits with the authorised institutions increased by 2.3%, among which Hong Kong dollar deposits increased by 1.6%. There was no notable sign of capital outflows from the Hong Kong banking system. Moreover, Hong Kong’s offshore RMB liquidity pool has further expanded. As at end-August this year, RMB customer deposits and outstanding RMB certificates of deposit reached RMB 1,112.7 billion, an increase of 12.6% over the same period last year.
Insurance Business
For the first three quarters of this year, new office premiums of long-term business (excluding retirement scheme business) increased by 30.6% year on year to HK$146.5 billion. Thanks to the demand for whole life insurance and critical illness cover, new business premiums from Mainland visitors rose to HK$46.8 billion, equivalent to 32% of total individual business. Both figures are higher than the corresponding ones recorded in the same period of 2019, i.e. HK$36 billion and 25.8%. Meanwhile, gross and net premiums of general insurance business grew by 4.7% and 3% to HK$53.8 billion and HK$34.7 billion respectively.
In the medium to long run, our financial market will surely see more opportunities than challenges. The Government will, in collaboration with regulators, continue to take forward and implement new policy measures and initiatives, maintain the internationalised nature of Hong Kong’s financial market and facilitate integration of Mainland and foreign capital, with a view to creating new impetus for sustainable market development.
1 December 2023