By Vaibhav Tandon

I have never journeyed to Hong Kong, but I have seen movies which are set there.  The neon-soaked streetscapes in the films reflect the shining heritage of the city.  But the once-famous glow has faded in recent years.  So too has the excitement surrounding Hong Kong’s economy.

Hong Kong has been struggling to get back on its feet since the pandemic.  Real gross domestic product (GDP) is lower than it was five years ago. Inbound tourism remains depressed.  Demand for offices has slumped; property values have fallen by about 25% since the 2019 peak.

Hong Kong’s equity market has been stumbling, with the Hang Seng Index posting the worst performance among Asian exchanges in 2023.  The index has generated negative returns for four straight years and lost close to 50% of its value in the past three years.  Fundraising activity dropped to a two-decade low in 2023.  The number of delistings is also on the rise.  These trends could jeopardize Hong Kong’s standing as an international financial center. 

Hong Kong’s struggles are linked to that of mainland China’s, owing to close economic ties.  Mainland companies account for a little over two-thirds of the Hong Kong stock exchange’s market capitalization and over 90% of new listings (in 2023).  Beijing's economic slowdown and geopolitical tensions with the U.S. have contributed to the underperformance of the city and the shift in investor sentiment.  High interest rates have also weighed on the fundraising environment. 

Nevertheless, Hong Kong remains a leading global financial center, and not just for Chinese businesses.  The city is home to a large concentration of global fund managers, advisory businesses and private banks.  A total of 2,600 Japanese and American firms have a presence in the city, against 2,100 Chinese businesses.  Hong Kong is the world’s largest clearing center for the yuan outside of the mainland, processing close to two-thirds of cross-border yuan payments.  The city does not have any foreign exchange or capital controls, thus allowing investment to flow in or out without any restrictions. 

So while the glow of Hong Kong’s markets has certainly dimmed in recent years, the lights will not go off anytime soon.