Offshore jurisdictions naturally hope to benefit from the protests that have roiled Hong Kong over the past year by attracting business from the Chinese territory. In fact some may already be doing so, according to research commissioned by BVI Finance, the agency that promotes the British Virgin Islands’ financial services industry.
The survey findings* indicate that a material number of financial services firms – including fund managers and insurers – are looking either to start using or to make more use of other "international finance centres" (IFCs) for their investment holdings in the coming year.
The report, due to be released today (May 28), originates from a biased source (BVI would be one of the offshore locations looking to benefit) but is certainly timely. It follows Beijing’s unveiling last week of a controversial new national security law which has sparked renewed protests in Hong Kong. There is a widespread view that the move could harm the city's standing as an international finance hub.
Some two-thirds (64%) of respondents to the BVI survey said they used IFCs, and 59% of that proportion had investment portfolios that “benefit from using an IFC”. Around a third of that number expected to increase the volume of its assets using an IFC by 31%.
Jurisdictions such as BVI, and particularly the Cayman Islands, are common domiciles for hedge and private equity funds, for instance.
Around a quarter (23%) of the financial service company respondents in Hong Kong not already using IFCs said that they were actively looking to do so to manage and protect their assets in the coming year.
The BVI Finance survey had also polled corporates and wealthy investors. Around a third (35%) of the 53% of high-net-worth individuals that don't already used IFCs in Hong Kong were "actively looking to engage" with such centres in the year ahead.
Elise Donovan, chief executive of BVI Finance, said in a statement on the release of the report: “In a world where managing and mitigating risks is of paramount importance, investors, corporates and wealthy families in Hong Kong are increasingly turning to international finance centres.”
She added that this was a “long-standing trend” but that BVI Finance had seen it accelerate recently, without being more specific on the time frame.
NOT SO FAST, PERHAPS?
Some, however, don’t see a rush to transfer capital out of the territory just yet.
“I have not seen or perceived that business in Hong Kong is panicking and moving assets elsewhere, either via offshore centres such as the BVI or the Cayman Islands, or otherwise,” said Effie Vasilopoulos, Hong Kong-based co-leader of the investment funds, advisers and derivatives group at law firm Sidley Austin.
“A couple of clients have accelerated their focus on creating a second office in the Asia region as a potential hedge against the impact of escalating civil unrest in Hong Kong,” she told AsianInvestor. “That process was already under way for these corporations before the new national security law was proposed during this past week.”
But most of the established business community in the city appear to be taking the measure of the new law and carefully monitoring developments, Vasilopoulos said.
“Business did not leave Hong Kong in droves last year, as predicted by some commentators,” she added. “It is unlikely to do so as a result of this week’s events unless very significant changes to the existing two-state legal framework of Hong Kong are implemented.”
Key drivers of business in the territory are the stability and continuity of the tax base, continuity of the US dollar/Hong Kong dollar currency peg and the absence of capital controls, she noted.
But Vasilopoulos conceded that political instability would cause volatility in the broader capital markets, as occurred following the introduction of the extradition bill early last year.
* The report polled 200 firms – including banks, fund managers and insurers – evenly split across China, Hong Kong, Singapore and Vietnam. The research had been conducted over the previous seven weeks by East & Partners.