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Hong Kong-Singapore stars fade with boom-to-gloom in finance
[HONG KONG] Asia's financial-hub twins, Hong Kong and Singapore, are facing increasing brakes on growth even before potential turmoil from a Brexit vote in their ex-colonial master, with China's slowdown and the continuing shrinkage of the financial industry striking both.
Hong Kong's economy unexpectedly contracted in the first quarter, weighed down by falling retail sales and the weakest property market in 25 years. Singapore eked out only a modest expansion in the same period, hurt by weak exports and a downturn in financial services.
Problems in the two cities are similar. Banks are finding it harder to grow profits, hiring has slowed and stock trading is in a slump. Capital inflows propelled by US Federal Reserve quantitative easing and, later, by Chinese investors, are now in the rear-view mirror.
While they have seen tougher times before and are building on strengths in other areas, such as tourism, the years of finance-charged growth looks to be over.
When Barclays Plc announced in January that it would close its Asian cash equities operations, it was just the start of what's been a laundry-list of job cuts that have affected Hong Kong and Singapore this year.
The numbers explain the story: Hong Kong-listed shares saw daily average volume of HK$67 billion (S$11.6 billion) in turnover this year, down 46 per cent from HK$123 billion the same period last year.
First-time share sales have raised US$5.6 billion this year, less than half the US$14.4 billion of deals priced during the same period in 2015, according to data compiled by Bloomberg, the worst start to a year since 2013.
Singapore, as the centre for South-east Asian deal-making, has experienced a decline in activity. Acquisitions involving companies from the region have fallen 24 per cent this year to US$64.9 billion, compared with US$85 billion the same period in 2015, the data show. About S$1.57 billion worth of stocks changed hands on average daily this year, a 6 per cent decline compared with the same period last year.
"As financial centres, both cities cannot escape the geopolitical and economic forces coming out from China," said Andrew Sheng, a distinguished fellow at the Asia Global Institute in Hong Kong, who previously worked at the Hong Kong Monetary Authority and Malaysia's central bank.
"So the slowdown will affect them both."
The China slowdown is part of a "powerful storm" Asia-Pacific banks will face, which will probably hurt profit growth in an industry that earned half a trillion dollars last year, according to a McKinsey & Co report released this week.
China, which had led regional banks' profit gains for most of the past decade, is going to drag on that growth as its economy weakens, the consultancy said.
It's all a far cry from the years when China's super-charged expansion spurred its industrial giants and banks to tap Hong Kong and Singapore for financial know-how and billions worth of debt and share issues, fueling rapid growth in banking, tourism and luxury goods shopping.
Thanks to those years of growth, the financial industry came to make up a significant shares of the twin cities' economies. Singapore is home to more than 1,200 financial institutions including banks, insurers and finance companies, according to the Monetary Authority of Singapore.
The financial sector employs about 5 per cent of the total workforce, MAS data show. Finance and insurance make up the fourth largest component of Singapore's economy, accounting for almost 13 per cent in 2015, according to the Ministry of Trade and Industry.
Hong Kong's financial-services industry was the second-biggest contributor to gross domestic product in 2014, with a 16.6 per cent share, according to government data, only behind trading and logistics.
The financial sector employed 6.3 per cent of the workforce in 2014. Hong Kong is home to 156 licensed banks as at June 17, according to HKMA data.
"It is very challenging for banks now," said John Mullally, financial services director of Robert Walters Hong Kong.
"There's a lack of confidence and stability right there. When you have that, market participants such as banks are unlikely to want to hire."
It's not all doom-and-gloom. Singapore's tourism sector is enjoying a bump from wealthy Chinese visiting the country's flashy casino resorts. Credit Suisse Group AG has forecast that tourist arrivals this year will probably exceed forecasts from the Singapore Tourism Board, climbing as much as 8 per cent to 16.5 million compared to 2015.
In Hong Kong, the city remains a key gateway for Chinese companies looking to raise capital and as a private banking centre for the region's rich.
Still, the two finance hubs face major challenges. So long as Chinese growth struggles for traction, the world's no 2 economy will cast a long shadow over Hong Kong and Singapore too.
"The headwinds for economic growth are nowhere near over for either of the two," said Klaus Baader, chief Asia-Pacific economist at Societe Generale SA.
"The challenges are very significant."