Will Singapore / HK Become the next global financial capital?

Tokyo was toppled by the Asian Financial crisis. Do you think the same happen to NYC (in the next 10ys) due to covid ,China's rise, etc. Not looking for crazy patriotic responses - no denying US is at an inflection point and China is a bit ahead of the curve.

Comments (26)

2y
financedude1226, what's your opinion? Comment below:

too much controversy with HK INDEPENDANCE right now that won't be going away soon. Not while HK is still under China

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2y
Concretemonkey, what's your opinion? Comment below:

I disagree with both comments above but am interested in hearing counter thoughts.

With the accelerated decoupling of US and China and reversal of globalization, my guess is there will not be one global financial capital but NYC will be the financial capital of the West and HK will be that of the East.

HK is simply too important for corporate China. The HK stock exchange has raised more money in IPO proceeds than the NYSE for 7 out of the past 10 years. Why? Because if Chinese companies want to raise serious money, they can not do it in Shanghai or Shenzhen stock exchanges where there is no liquidity and are closed off to foreign investors. Even if they were open to foreign investors, who is going to trust the transparency and legal system in China. As a result, large cap Chinese companies list in NYC or HK but what are NYSE-listed companies like Alibaba and JD.com doing now? They are doing secondary listings in HK because the US-China relationship is too hostile right now. People like Marco Rubio are even encouraging the government to outright ban Chinese companies from listing in US, where will these companies go? Hong Kong.

As long as China enforces strict capital controls, refuses to internationalize the RMB and maintains its lack of transparency / internationally recognized legal system, Shanghai will be limited to a domestic capital market and serve an entirely different role as HK.

Does Singapore have a chance? probably not. Singapore is mainly a hub for Southeast Asia and with the rate of growth countries like Vietnam and Indonesia are experiencing, maybe they won't even need Singapore in the future. Who wants to depend on a foreign country if they don't have to.

HK is under threat but as long as it maintains the common law, it will continue to be an important gateway between China and the west in terms of financial services. If HK isn't important to China, you really think the CCP would withhold physical force against HK protesters? They haven't because they have too much to lose.

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2y
odog808, what's your opinion? Comment below:
Concretemonkey:
I disagree with both comments above but am interested in hearing counter thoughts.

With the accelerated decoupling of US and China and reversal of globalization, my guess is there will not be one global financial capital but NYC will be the financial capital of the West and HK will be that of the East.

HK is simply too important for corporate China. The HK stock exchange has raised more money in IPO proceeds than the NYSE for 7 out of the past 10 years. Why? Because if Chinese companies want to raise serious money, they can not do it in Shanghai or Shenzhen stock exchanges where there is no liquidity and are closed off to foreign investors. Even if they were open to foreign investors, who is going to trust the transparency and legal system in China. As a result, large cap Chinese companies list in NYC or HK but what are NYSE-listed companies like Alibaba and JD.com doing now? They are doing secondary listings in HK because the US-China relationship is too hostile right now. People like Marco Rubio are even encouraging the government to outright ban Chinese companies from listing in US, where will these companies go? Hong Kong.

As long as China enforces strict capital controls, refuses to internationalize the RMB and maintains its lack of transparency / internationally recognized legal system, Shanghai will be limited to a domestic capital market and serve an entirely different role as HK.

Does Singapore have a chance? probably not. Singapore is mainly a hub for Southeast Asia and with the rate of growth countries like Vietnam and Indonesia are experiencing, maybe they won't even need Singapore in the future. Who wants to depend on a foreign country if they don't have to.

HK is under threat but as long as it maintains the common law, it will continue to be an important gateway between China and the west in terms of financial services. If HK isn't important to China, you really think the CCP would withhold physical force against HK protesters? They haven't because they have too much to lose.

I agree with you (I hope so for HK's sake). I'll ask my HK based friends if they agree but it makes sense to me.

Have compassion as well as ambition and you’ll go far in life
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2y
Concretemonkey, what's your opinion? Comment below:

Great I am interested in what people on the ground have to say. From my upkeep with what's happening, the real question to me doesn't seem like "Is HK important to China?" but "Is Xi Jinping willing to prioritize Chinese nationalism over FDI and the financial wellbeing of Chinese corporates?" If nationalism is the priority, HK is facing significant headwinds going forward.

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2y
daddydimon, what's your opinion? Comment below:

HK has been facing severe pressure from China. I honestly don't know if HK will be able to maintain common law and transparency in the long-run

2y
Concretemonkey, what's your opinion? Comment below:

Despite the pressure HK is under, I really don't think the common law will be replaced before 2047 as contractually agreed. China benefits from Hong Kong being international but desperately wants Hong Kong people to be more nationalistic. Threatening the common law won't bring Hong Kongers closer to Beijing and will be a lose-lose situation. Instead I think Beijing will try to change HK people from within, such as revamping the public school curriculum to incorporate more nationalistic elements.

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2y
Concretemonkey, what's your opinion? Comment below:

Singapore does stand to gain from the HK protests but it is important to know in what aspects and it is most definitely not in capital markets (the Singapore stock exchange is smaller than the Bombay stock exchange). Perhaps Singapore will be a larger wealth management hub than HK and perhaps non financial services companies from US will make Singapore their APAC HQ over HK for the safety of the expats they send over. However, the HK protests do not instantly make Singapore an important financial hub.

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  • Analyst 3+ in PE - Other
2y

To add that actually many corporates have done that over the years.

Asia HQ in Singapore but Greater China HQ in HK/BJ/SH

Following the protest many more companies will follow suit and accelerate their relocation.

The China market has been undergoing a heavy localization for many years. With a large enough market that is comparable to rest of Asia, it makes sense to separate the two and allow different management approach there.

2y
earthwalker7, what's your opinion? Comment below:

Long term I worry about the future of HK (where I live). Many of those finance jobs are moving north. Yes, HK has IPOs. But outside of that HK has done a poor job of diversifying its economy. THere's no tech or healthcare to be done in this city at all.

But I'm not that worried about safety. The chance of being directly impacted in a serious way in HK is far less than even via a walk thru the Tenderloin in SF.

2y
Pierogi Equities, what's your opinion? Comment below:

I visited a friend there last year during the protests and on the whole I felt very safe everywhere I was.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

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2y
Concretemonkey, what's your opinion? Comment below:

Agree that HK is still one of the safest cities in the world. But for people outside the city, their perception if based on half-truths (the media) so the image of HK being a safe place has probably been damaged, unfortunately.

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1y
Yankee Doodle, what's your opinion? Comment below:

Even under a military occupation, Hong Kong is safer than pretty much all American cities.

"Work ethic, work ethic" - Vince Vaughn

  • Analyst 3+ in PE - Other
2y

People have failed to realize HK is (soon will be was) the financial capital of China

Rule of law is important but not a necessary condition.

There are funds betting China onshore market, Vietnam, India and Philippines. If a market doesn't have so-called rule of law, then it will offer a risk premium that makes it juicier. That's it.

Reason why HK becomes the financial capital of China is primarily because HK can serve as a sandbox for China financial market. No capital control, no ownership restriction, etc.

China cannot offer this to foreigners because they don't want to risk their stability with it. They want control of their system. That is why you see JVs, highly restricted financial sector and capital control. HK is a free for all casino that allows anyone but Chinese retail (at least majority of the retails are barred) to bet.

However, things may change. Not because of "political instability" or "independence at threat". But more because of the trade war and you american bros' impatience for free China market.

"How much can I make in a tiny banking market of 7m population vs 1.4b?" "Why am I letting an SOE auto or life insurance JV partner free riding my effort?"

The Americans opened Japan in 1853 with Perry's Expedition. Now it is the turn to open China. It may or may not lead to the prosperity of both. But for sure it will lead to the demise of HK

p.s. i am an HK bro not China bro. But just speaking out the harsh reality here. EW can chime in as well

  • Analyst 1 in IB-M&A
2y

Why do you think US will succeed in opening up China the way they did with Japan? China seems like a much stronger power than Japan was at its peak, it's hard to imagine the country will start risking their stability by opening up to foreigners in this current environment. Does the US have that much of an upper hand?

  • Analyst 3+ in PE - Other
2y

I would say the US has the upper hand at the moment but of course the difference in power is much less than US/Japan in 1853.

Politically the public in the US is supporting the government to go hawkish on China. Economically, US businesses have huge presence (large market for US but at the same time these companies also created lots of employments).

China is quite different from the US. Economic stability is China's political fundamentals, which is way more important than how economy is valued in US politics. Many in tier 1/2 cities in China are satisfied with the status quo given the rapid economic growth in last few decades (especially if you are comparing China against former Soviet states). So US can put pressure on China by leveraging its economic ties with China.

I guess US companies are getting impatient with China being a highly protective market. Your expansion is geographically limited due to regulators. You have to introduce a JV partner and let them free ride you. There are controls in capital flow and investments, etc.

To be honest, I understand why China needs to protect its market. And China is not the only one. India and SEA market is also protective. Japanese and Koreans don't allow foreign ownership exceeding certain % in some sectors. But politically China is not an ally of the US and economically China is most attractive market. So why not extract more economic value from it?

I don't think there will be a very heavy punishment / extremely unfavorable terms to China. But still, many companies in China are not ready to face competition locally from the west. And finally, even some mild terms signed by the US and China could impair HK's status as a financial / business hub. The easier US can do business directly with China, the less value HK has.

2y
Jamoldo, what's your opinion? Comment below:
Che Guevara:
Tokyo was toppled by the Asian Financial crisis. Do you think the same happen to NYC (in the next 10ys) due to covid ,China's rise, etc. Not looking for crazy patriotic responses - no denying US is at an inflection point and China is a bit ahead of the curve.

Having lived and worked in Asia for nearly 14 years across different jobs in this industry, the short answer is "no".

Asia has always been the land of promise. Always will be.

I used to do Asia-Pacific PE (kind of like FoF). Now I do something else but happy to try and answer questions on that stuff.
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1y
ChimpyLawya, what's your opinion? Comment below:

You said it champ. Asia is like no other. Anyone doubting this (especially in light of 2021 RCEP which basically booted America off the Pacific and SCS trade bloc) is on methamphetamines or worse. America's structural legal and IB market is already on a massive downhill spiral and inflationary consequences are already materialising as as speak. Move your capital to Asia, kids. Best not to fuck around right now.

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1y
Anonymous Monkey, what's your opinion? Comment below:

Honestly, China is doing pretty good but it seems like Xi is trying as hard as he can to shoot himself in the foot with his overly aggressive ways.  It's a little early but I think if he continues to go down this route it will bite him in the ass.

  • Associate 1 in AM - Other
1y

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1y
patrickb8man, what's your opinion? Comment below:

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