• K

The slippery slope of irreversible change

In 2017, I flew to Riyadh for the first time ever to attend the Future Investment Initiative (FII) conference. This was Saudi Arabia’s largest and first ever nation-wide event orchestrated to bring in the largest and wealthiest investors, businessmen and celebrities from all over the world. Obviously a large budget had been set aside to fund these events, in exchange for sovereign publicity or to bring in foreign investment. Held at the Four Seasons, the whole thing was so high profile that it was dubbed “Davos in the desert” by the media.

Many governments have their own versions of the FII - the APEC summit, Boao Forum, Saint Petersburg as well as other relatively smaller but similarly symbolic events hosted by relatively high profile media and organizations including the Forbes, Fortune, etc.


In addition to rubbing shoulders with the who's who in the upper echelons of the business world., the people who travelled to these places often associate strategic importance with the cities that hosted these MICE events.

 

Hong Kong was always known to be the top MICE destination for such events. Accessibility was one of the biggest draws. No one needs to plan ahead to be in Hong Kong. There are basically at least a hundred flights in and out from the city every day. The 20-minute commute from the airport to the city centre means that one can fly in the morning and get out by night. Besides, there was always something to do in town: Cultural festivals, concerts, business conferences, food and the shopping.


And there would always be investors to meet and friends to catch up with. All you have to do is book your tickets and go. Almost every company with a meaningful global presence in Asia has an outpost in Hong Kong. At one point of time the city was even leading the charge in convening the "most brilliant minds in international tech" via the RISE conference - a must-go for any technology company with a serious interest in Asia.


But there is less reason to get into Hong Kong today.


Aside from the fact that many companies and conferences have shifted away, a string of covid testing procedures awaits upon arrival at the airport. Travelling into Hong Kong today has become a meticulously curated trip.


Despite the recent inaugural policy address by the new chief executive in Hong Kong to reclaim the city’s historic position as a premier financial center and to step up talent acquisition and retention, people seemed to have somewhat lost confidence in what the future holds for the city.


To stem the further outflow of companies and talent, the government had also in recent months very publicly unveiled a high-level banking summit to host the titans of finance back in its city center. Yet inbound quarantine measures and restrictive health monitoring continue to weigh on travel.


Unlike the FII in Riyadh, never in my wildest imagination, did I expect a city like Hong Kong to have to host a large summit in order to convince high profile bankers, businessmen and investors to come to its shores.


If you wanted to raise capital in Asia, Hong Kong was definitely one of the cities you had to stop by. No questions asked. During the "peak season" of investor roadshows and conferences, it was even common to bump into some of the bigwigs when you were in town (I remembered sharing the same lift with David Rubenstein once in HK at a conference).

The reality that Hong Kong now has to go out at length to advertise a high profile banker summit reveals how much its economic environment has deteriorated over the last few years.

 

Aside from the exodus of companies and talent, the debt and equities market has basically also dried up.


Companies that wanted the largest and most jumbo offerings almost always came to the HKEx because of the size, depth of liquidity and diverse pools of capital. People go to Hong Kong for the riches - and it was not uncommon to find multi-bagger companies listed on the Hong Kong Exchange as compared to Singapore, which in my view, the latter is more suited for those who seek stable returns and the preservation of wealth.


In order to justify and maintain its leading role as an IPO destination for Asia, the Hong Kong exchange had also initiated waiving revenue requirement for tech IPOs in an effort to revive the IPO market.


Singapore is quite the classic example of how efforts in positioning itself as a listing hub has proved relatively futile. Its tie-up with NASDAQ and Tel Aviv has been questionable - none of which has produced any signficant tangible results. Even, the newly launched SPAC framework, which was probably meant to be an avenue for VCs and early tech investors to cash out, has yet to see outstanding results with only three listings to date. Part of this was probably also due to bad market timing.

Hong Kong has enjoyed much success in priding itself as the go-to Asia Pacific regional hub for business and equities market over Singapore largely attributed to China. It is undeniable that China played a part in creating the huge ecosystem of listed companies. The sheer size of the market breeds liquidity, which drives more brokerage and trading activity, more research coverage, more investor awareness, drawing in more capital for companies. Globalization (i.e. China opening up its doors) also played a big role in that process.


As such, Hong Kong didn't really need to sell itself as a prime destination or lower its standards in order to attract the influx of capital and large companies. Maybe not until recently.

But once we start to compromise on quality and start doing things like waiving revenue requirements for tech IPOs, things can start to get dangerous. And if not careful, this shift could end up being permanent and structural.

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