Guarding Against Complacency: Hong Kong
Jennifer Falco had dreamed of a career in high finance, though she never expected that dream to take her to Hong Kong. The 28-year-old American quit her Wall Street job to get an M.B.A. in Milan, then headed to London. But with the financial crisis setting in, there was no full-time job to be had. After a short stint at Goldman Sachs, her boss gave her some valuable advice: "Go East, young woman." So Falco packed up and moved to Hong Kong, where she found an internship in equity finance at HSBC in September 2008 that later became a permanent position. "There's a lot of hiring now. Business is picking up," Falco says. "People are like, let's move to Asia and see what we can do."
With good reason. Hong Kong is benefiting at the expense of its Western rivals. While New York and London suffered through bank failures, controversial government bailouts and large-scale job losses, Hong Kong's stature as a capital of world finance has been enhanced by the lure of continued big deals and big money in a fast-rising Asia. Initial public offerings on Hong Kong's stock exchanges raked in over $31 billion in 2009 — more than the markets in New York and London combined, according to PricewaterhouseCoopers. Even more importantly, the attitude of Hong Kong's politicians and regulators towards its financiers is more supportive than in the West. There's no talk here of confiscatory penalties on bonuses or extra taxes, and no public hearings on the evil-doings of big finance. "There have never been economic and political conditions as favorable as they are today to take a much more advantaged position against New York and London, when they're down and we're up," says Benjamin Hung, CEO of Standard Chartered Bank in Hong Kong. "It's the chance of a lifetime."
Hong Kong's biggest edge is its special relationship with China. Shanghai may dominate the country's domestic financial industry, but Hong Kong is still China's premier international finance center. That crucial role helped Hong Kong piggyback on China's performance last year. Hong Kong's stock market was buoyed by Chinese firms tapping foreign investors, as well as international companies looking to list China-linked assets. American gaming giants Wynn Resorts and Las Vegas Sands completed IPOs of their Macau operations in Hong Kong, raising a combined $4.3 billion.
Now Hong Kong has a front-row seat for one of the next waves of financial globalization — the emergence of the developing world onto the stage of international finance. For the past decade, Beijing's leaders have looked first to Hong Kong when testing financial reform, seeking global expertise or reaching out to the international investor community. That policy looks set to continue. "Hong Kong," says Richard Vuylsteke, president of Hong Kong's American Chamber of Commerce, "is now the logical gateway for investment out of China."
The potential can be seen in the city's burgeoning business in China's currency, the renminbi (or RMB). Beijing's leaders are experimenting in Hong Kong with the liberalization of its tightly controlled currency, with the eventual goal of making it more widely used in international finance and trade. Hong Kong banks have amassed $8.4 billion in RMB-denominated deposits since 2004, after they became the first financial firms outside mainland China that Beijing allowed to offer RMB accounts, credit cards and other services. Last September, the government chose Hong Kong to offer its first international RMB-denominated sovereign bond. Tse Kwok-leung, head of economic research at the Bank of China in Hong Kong, says that the RMB business "is a new driver that gives new momentum to the Hong Kong financial sector going forward."
The world's bankers are taking notice. One of the key ways in which Hong Kong appears to be benefiting from its robust outlook is an inflow of expertise — the lifeblood of a finance center's competitiveness. Hung of Standard Chartered says that the bank was able to lure top-notch talent to Hong Kong due to the severe impact of the financial crisis on the West. While the Western money capitals have witnessed tens of thousands of job losses, the number of people employed in finance and insurance in Hong Kong dipped only slightly in late 2008, then began to recover last year. More importantly, Hong Kong, with low taxes, a pleasant lifestyle and strong business opportunities, is becoming more desirable for many than New York or London. Instead of just a brief résumé-building stop on the way to Wall Street or the City, bankers are beginning to consider the Asian hub as a base for long-term careers. "People see Hong Kong as a springboard to participate in the Asian growth story," says Kelly Driscoll, senior managing director at State Street Global Advisors in Hong Kong. "With the prospects here in Asia and Hong Kong, this is the place to be in coming years."
Credit Suisse, for example, has brought several senior bankers into its Hong Kong operations. But the city's most notable new resident is HSBC CEO Michael Geoghegan, who is relocating from the megabank's headquarters in London to Hong Kong. The move "further positions the Group for the shift in the world's center of economic gravity from west to east," HSBC said in a statement.
To keep capitalizing on that seismic shift, however, Hong Kong still has work to do. Though strong in equities and currencies, Hong Kong's finance industry is weaker in other important segments, such as bonds and commodities. And Hong Kong has to guard against counting on China alone, no matter how bright its outlook may be. For more than 150 years, Hong Kong has excelled at linking China to the outside. Now its financial industry must continue to find new ways to do so, if it wishes to lead the next developments in global finance. "Hong Kong cannot just look up to the north," says Hung of Standard Chartered. "It has to remain connected to the rest of the world."