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June 25, 2019updated 26 Jun 2019 8:51am

Hong Kong’s status as an offshore safe haven is under threat

By GlobalData Financial

Current political unrest in Hong Kong will see future high net worth (HNW) offshore wealth being diverted to Singapore. Now is the city-state’s time to shine and position itself as the safe haven Hong Kong can no longer claim, says GlobalData.

The ongoing protests in Hong Kong, in response to a proposed law that would allow people to be extradited to Mainland China for trial, will affect its status as one of Asia’s most prominent offshore centers. The main beneficiary will be rival Singapore – both centers have sought to position themselves as financial services hubs, offering competitive tax environments, deep and liquid financial markets, highly skilled workforces, and legal certainty. In the case of Hong Kong, the latter attribute is looking increasingly questionable.

While Hong Kong acts as a gateway to China, there is little else that differentiates it from Singapore, meaning HNW investors will be more inclined to channel their fortunes to the southeastern city-state.

As China seeks to tighten its grip on the semi-autonomous region, investors will also be concerned that these protests are not an isolated incident, especially as the ‘umbrella movement’ protests of five years ago remain fresh in the memory.

In particular, Chinese HNW investors, one of the major sources of business for private wealth managers in Hong Kong, will likely look for new homes for their fortunes. Cultural and geographic ties mean that Hong Kong is a popular booking center for Chinese investors. However, should the extradition bill become reality, it will be possible for Mainland authorities to request Hong Kong courts to freeze and confiscate funds.

While this only applies to individuals accused of having committed crimes on the Mainland, concerns surrounding the transparency of this definition are sufficient enough for HNW investors to fear for their wealth. In fact, reports have already started to emerge of Hong Kong tycoons offshoring assets, as fears rise over the new extradition law.

While it is unlikely that established investors in the Hong Kong market will shift as a result of the protests, new HNW investors looking for a stable offshore financial center will think twice.

Offshore centers that are able to successfully highlight their safe-haven status will capitalize on the situation in Hong Kong. Political factors have emerged as increasingly important determinants of not only economic but also financial market performance in recent years. Thus, being able to convey political stability is a must when looking to attract new global HNW wealth.

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