(Bloomberg) -- With the full reopening of Hong Kong’s border with China on Monday, and the city dropping vaccine requirements for all visitors, the campaign to rebuild the territory’s battered economy is full speed ahead. But can the city reclaim its crown as the region’s top finance hub from Singapore, whose earlier reopening from Covid-19 gave it a significant head start?
Cross-border travel with China is expected to boost Hong Kong’s population, give the city a wealth injection and help lift its economy out of the doldrums. Yet Singapore's tension-free ties with the West and corporate-tax incentives remain very attractive.
Here are five areas in which Hong Kong could triumph over rival Singapore, according to Bloomberg Intelligence analysts.
The Stock Market
Hong Kong could keep capturing far more equity business than Singapore in the next five years due to the China factor. The city's IPOs by deal value could triple to about $40 billion in 2023 driven by China's reopening, its policy shift toward growth and pent-up demand for capital. During last year's drought, Hong Kong Exchanges still had 82 IPOs, raising $13.4 billion, compared with only 11 deals and less than $1 billion in Singapore. Through 2023, more Chinese companies listed in the US may seek listings in Hong Kong, boosting the city's market cap from the current $5 trillion, versus Singapore's $630 billion. Hong Kong's daily stock-trading turnover averaged $15.9 billion and Singapore's, $865 million last year. Hong Kong can keep its lead in equity business unless there are extensive sanctions against China by Western governments.
Dollar Bonds
The China factor will continue to keep Hong Kong ahead of Singapore in the dollar-bond business, despite China's property-bond instability and elevated US Treasury yields. China's local-government owned enterprises' placements and high-yield debt exchanges have accounted for most corporate dollar-bond issuance in Asia ex-Japan since the fourth quarter of 2022. Some Chinese property developers, with sound financial health, could tap the market again in this year as Beijing might ease leverage rules. Offshore Chinese financial institutions are another group of potential issuers. All these might support demand for fixed-income traders and bankers in Hong Kong more than Singapore.
Finance Salaries
Finance professionals can get paid a lot more in Hong Kong than in Singapore, which can affect decisions when picking work locations. In 2023, industry workers in both cities might expect salary increases of about 4%, based on Mercer's survey. Average total compensation, including both salary and bonus, approaches $300,000 for finance workers in Hong Kong — 52% higher than in Singapore, based on eFinancialCareers' report in 2022. For professionals with over 10 years of experience, the pay disparity could reach up to 66%. And effective tax rates for high earners are lower in Hong Kong, due to a 15% standard rate, whereas they can pay more than 20% Singapore. In short, people working in the front office, private equity and hedge funds can get much bigger paychecks in Hong Kong, while differences might be smaller for back- and middle-office posts.
Asset Management
Hong Kong may cement its status as Asia's asset-management hub as mainland China ends its border restrictions, despite some concerns over the city's political environment. Hong Kong's growth in assets under management outpaced that of Singapore in 2019, even as pro-democracy protests rocked the city, and in 2020 at the height of the Covid pandemic. Things stabilized in 2021 as Singapore shifted to living with Covid-19, based on the regulator's surveys of the industry. Hong Kong's assets under management could bounce back in 2023 from a potential drop in 2022 as wealthy Chinese resume travel and investment in the city.
Economic Boost
Mainland China and Hong Kong's later reopening from strict Covid restrictions than Singapore and other major economies will give Hong Kong's economy a tailwind in a year of Fed-induced global recession. Visitors can now travel to the Chinese city freely, without facing any quarantine and forced Covid testing, putting Hong Kong on an equal footing with Singapore as a business hub. Consensus expects the city's GDP to bounce back 2.8% this year, from a likely 3% contraction in 2022. We see an upside to this estimate as the mainland's GDP growth could beat 5% and this will disproportionately boost fund and people flows to Hong Kong. Singapore's economy might only expand 2% this year, as its reopening benefits gradually fade.
--With assistance from Francis Chan.
(Corrects number of areas in par 3)
©2023 Bloomberg L.P.
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