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Cheah Cheng Hye

Hong Kong is a key beneficiary of mainland China’s high household savings rate. A spillover of capital into Hong Kong from the mainland’s overflowing reservoir of household savings could provide much-needed relief for Hong Kong, which is struggling with protracted economic and geopolitical uncertainties.
While the mainland is subjected to capital controls, Hong Kong is treated as a special case, with Beijing gradually easing restrictions to allow money to flow under various schemes.
At the Global Financial Leaders Summit held in Hong Kong in November, Vice-Premier He Lifeng, the nation’s top economic official, said: “To accelerate the development of our country into a financial powerhouse requires Hong Kong to become an even stronger international financial centre.”
The reality is that Hong Kong’s stock market has been held back by insufficient investment demand for years. This is evident in several ways, such as how most initial public offerings (IPOs) in Hong Kong don’t perform. In the past five years, 473 companies were listed and of these 81 per cent still trade below their IPO price.
Second, trading volume is lacklustre. So far this year, the market’s average daily turnover is HK$128 billion (US$16.4 billion), which is below levels seen in 2020 and 2021. For comparison, the combined daily turnover of the mainland’s Shanghai and Shenzhen exchanges is about five times larger than Hong Kong.
Third, Hong Kong share prices have been weak, with the Hang Seng Index declining 16 per cent in the past 10 years. During the same period, the S&P 500 index increased almost 190 per cent.


Fourth, shares of Chinese companies that are dual listed domestically and in Hong Kong – with the same voting and dividend rights – trade at very different prices, reflecting the weakness in Hong Kong. Currently, the domestically listed A shares trade at a 48 per cent higher price than the Hong Kong-listed H shares, on average, with the gap wider than usual by historical standards.
Clearly, Hong Kong’s stock market is not in good shape. An array of factors has dampened interest, including China’s economic slowdown – about 80 per cent of Hong Kong’s market capitalisation is based on listing mainland companies – the effects of the Covid-19 pandemic, geopolitical and social tensions and the gravitational pull of the bull market in the United States.
In Hong Kong, the financial services industry has responded with staff cuts and other measures to reduce costs, with negative multiplier effects on the whole economy. What could change the game is mainland China’s emergence as a major exporter of capital, with Hong Kong as the key offshore service centre for such outflows.
Savings have piled up on the mainland because investors have lost confidence in real estate. In a historic shift, the biggest allocation now is for bank deposits, which represent 46 per cent of all savings. Only 18 per cent and 11 per cent of savings, respectively, go to property and investments in stocks and mutual funds, according to official figures.


China’s savers currently have a mind-boggling 137 trillion yuan (US$18.9 trillion) stored in bank deposits. That amount is equivalent to almost 110 per cent of the country’s gross domestic product.
For them, the problem is low yields – about 1 per cent to 1.5 per cent annually – on their deposits. They are motivated to diversify to more attractive investments, giving mainland China’s domestic stock markets as well as Hong Kong a golden opportunity to capture business.
In Hong Kong, officials from the stock exchange, regulatory and monetary agencies and the government have worked long and hard to open more cross-border avenues for capital to arrive. The Stock Connect scheme, which already contributes 17 per cent of Hong Kong’s stock turnover and 7 per cent of the mainland’s, has widened to include bond and exchange-traded fund (ETF) trading channels, with the next step possibly taking in ETFs in fixed-income and commodities such as gold.
An IPO Connect that links the primary markets of Hong Kong and the mainland would be a crowning achievement, if Beijing officials are willing to permit it, as this would allow mainland investors to participate in IPOs in Hong Kong. Mutual Recognition of Funds (MRF), which allows retail distribution of funds, is another major step. On Hong Kong’s wish list is for mainland insurance companies to be added to the list of eligible investors in MRF-approved funds.

Specially tailored for the Greater Bay Area is the new Wealth Management Connect scheme, which lets area residents directly invest in funds across borders. Hong Kong is also pushing into the family offices sector, and it could overtake Switzerland to become the world leader in the sector by the end of the decade. As the biggest global centre for trading offshore yuan, Hong Kong also has products denominated in the Chinese currency, widening its appeal.
It is likely few people would have thought that China’s property bust would have the unintended consequence of freeing up capital that could feed Hong Kong’s market. But for today’s Hong Kong, no alternative source of money with comparable potential is available.
Outside China, the global asset management industry is dominated by Western fund managers who tend to take a negative view of Chinese equities. Visions of vast Middle Eastern wealth that Hong Kong can tap have promised much but so far delivered little. Southeast Asian money is promising but brings the city into competition with Singapore. For now, the mainland is where it’s at for Hong Kong.


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Hong Kong stock market’s best bet is more access to mainland savings

Women walk past a screen showing the Hang Seng Index in Central, Hong Kong, on October 8. The index has declined 16 per cent in the past 10 years while the S&P 500 index has increased almost 190 per cent during the same period. Photo: Eugene Lee

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The city’s working professionals are becoming risk averse about switching jobs. Photo: Dickson Lee

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Hong Kong Stock Exchange in Central. The Stock Connect programme initially allowed for trading between the exchanges of Hong Kong and Shanghai and was later expanded to include Shenzhen. Photo: Jonathan Wong

Finance chief Paul Chan says Hong Kong can make better use of its function as a testing ground for the internationalisation of the yuan through offering more investment products under the stock scheme. Photo: May Tse

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Construction workers on a site in Central. Photo: Jelly Tse 

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Traders work on the floor of the New York Stock Exchange on November 7, a day after the S&P 500 and Nasdaq Composite closed at all-time highs. Photo: Getty Images via AFP

US Federal Reserve chair Jerome Powell speaks at a press conference on November 7 after the latest Federal Open Market Committee meeting in Washington decided to lower the benchmark rate by a quarter of a percentage point to 4.5-4.75 per cent. Photo: Reuters

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There is no alternative of comparable potential for Hong Kong than the mainland and its deep pool of household savings


There is no alternative of comparable potential for Hong Kong than the mainland and its deep pool of household savings.


Stock Connect

Hang Seng Index

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Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Hong Kong stock market’s best bet is more access to mainland savings

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}There is no alternative of comparable potential for Hong Kong than the mainland and its deep pool of household savings

There is no alternative of comparable potential for Hong Kong than the mainland and its deep pool of household savings