Capital flight from Hong Kong “set to spike”

Wealthy individuals are increasingly shifting assets out of the city and considering moving themselves elsewhere too, amid rising sanctions and lost confidence, say financial advisers.
Capital flight from Hong Kong “set to spike”

Hit by bad news on a variety of fronts, wealthy investors in Hong Kong are increasingly moving money out of the territory, financial advisers in the city have told AsianInvestor. And a growing number of people are considering heading for the exits themselves.

Beijing’s crackdown on political freedoms is tightening under Hong Kong’s National Security Law (NSL) – witness this week's arrest of pro-democracy tycoon Jimmy Lai – and tit-for-tat US-China sanctions are fuelling tensions further.

While foreign firms largely seem to be looking to ride out the turbulence for the time being, individuals are increasingly taking evasive action – or at the very least hedging their bets.

Jessica Cutrera,
The Capital Company

“We have had a number of clients looking to move their assets to Singapore or Europe as a result of the recent changes,” said Jessica Cutrera, partner at The Capital Company in Hong Kong. “So far, we are hoping [there will be] minimal business impact for us, but we can easily book clients in multiple jurisdictions. Local banks and asset managers may not have that option.”

Similarly, Rick Adkinson, managing director at Hong Kong advisory firm Private Capital, told AsianInvestor that asset-repatriation work for his international clients was on the increase and he expects more to come, especially if the current tensions did not subside.

His clients are concerned about the geopolitical situation, the NSL and the effect both were having on market volatility, he said. “Our advice to them is just to be globally diversified in a low-cost portfolio and remain invested; tune out the noise.”


The pace of movement of assets out of Hong Kong would be even faster if it were not for Covid-19 lockdown, said Cheong Wing Kiat, Singapore-based principal of his own family office. Once that has cleared, he expects the numbers to spike, though investors may not completely desert the city.

“Too many factors are causing uncertainty and investors have lost confidence,” Cheong said. “They don’t have to put themselves through unnecessary and erratic uncertainties. Some will reduce their business and investment activities but will still leave a foot in Hong Kong.”

Tara Joseph, AmCham

The tensions seem particularly high for Americans in the territory.

“Many expatriates are drawing their own backup plans and ‘red line’ scenarios,” said Tara Joseph, president of the American Chamber of Commerce in Hong Kong (AmCham). “They increasingly discuss other options and what events would trigger them to leave the city they have loved.”

Ultimately, the city’s prized position as a financial centre is in peril if it can't attract the best talent, she added. “Once considered a plum posting, it is becoming a bigger and riskier undertaking to live and work in Hong Kong.”

In the last week, the political situation in Hong Kong has deteriorated further, with the arrest (and subsequent release on bail) of Lai and a raid of Apple Daily’s offices, and the US placing sanctions on chief executive Carrie Lam and 10 other members of the government.


The sanctions aim to punish the politicians for not upholding Hong Kong’s rights under ‘One Country Two Systems’, but they put American firms in Hong Kong in a difficult position.

US financial institutions were understandably reluctant to talk on the record about the deterioration in Hong Kong’s standing.

Carl Tannenbaum, chief economist at Northern Trust in Chicago, said: “As you might imagine, we are being somewhat cautious in commenting on the situation, which remains very fluid.”

Other US firms gave a similar response. Privately, though, they complained that the sanctions are causing headaches for their compliance officers, caught between two governments.

Josephine Chung,
Compliance Plus

Josephine Chung, director at consultancy Compliance Plus in Hong Kong, told AsianInvestor: “The US banks have their global sanctions policy to follow, and they will be very careful to make sure that the US sanctions are complied with in their global operations.”

That extends to freezing any US assets held by the 11 Hong Kong government officials hit by the American sanctions.

The Hong Kong Monetary Authority (HKMA), meanwhile, expressed its view that it was not under any legal obligation to ensure US sanctions were implemented.

However, said Chung, “it is likely the global or US banks will enforce the US sanctions against [the officials] anyway, irrespective of the view of HKMA”.

The sanctions have certainly added to concerns locally, according to Effie Vasilopoulos, partner at law firm Sidley Austin in Hong Kong.

The US’s Hong Kong Autonomy Act imposes primary sanctions on individuals, which in turn raises the prospect of secondary sanctions being imposed on institutions that deal with the sanctioned individuals, she told AsianInvestor.

“It raises a potential business continuity risk for those market participants that deal with those same institutions, in terms of any US-facing business activities that they transact,” said Vasilopoulos.

This may extend to a wide swath of transactions involving the US capital markets, she added. The sanctions have generated “a good deal of volatility and uncertainty as fund managers and other market participants attempt to diversify their service provider network away from potential risk in this arena”.

AmCham members in Hong Kong are certainly worried: 76% said in an early July survey that they were concerned about the NSL. Yet 64% said their companies were not planning to leave the territory.

“However, they are desperate for a bigger, better and more proactive strategy to restore Hong Kong’s battered image and economy,” said Joseph. “With so much at risk for Hong Kong, it needs to stay in the race to compete as a top-tier global city.”

That may not be easy, as the territory’s fate is seemingly no longer in its own hands.

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