Hong Kong’s growth as a wealth management centre has surged in recent months following modifications to the Wealth Management Connect regional market access scheme, with banks in the Asian financial hub benefiting from increased flows from the Chinese mainland.
Initially launched in 2021, WMC connects the capital markets of the Greater Bay Area consisting of Hong Kong, Macau and China’s Guangdong province, allowing investments into wealth management products, distributed via a closed-loop flow.
Upgrades to the programme known as WMC 2.0, launched in February, include increasing the individual investor quota from Rmb1mn ($137,500) to Rmb3mn, with the threshold for participation lowered to enable more Greater Bay Area residents to participate. Other enhancements to the scheme include a broader scope of wealth management projects on offer, and a wider scope of participating institutions, which now includes securities firms.
The Hong Kong Association of Banks states the number of funds distributed by Hong Kong banks under the southbound scheme, covering flows coming into the territory from the Chinese mainland, has almost doubled from 160 before the expansion of the thresholds to around 300.
[Southbound investors] are prioritising risk diversification and wealth preservation.
In the month following the rule change, the People’s Bank of China’s Guangdong branch saw more than 23,300 new mainland investors in March, compared with the previous month.
A spokesperson for HKAB said: “In an uncertain market, southbound investors tend to look more to lower-risk deposits as investors are increasingly adopting a risk-averse approach. They are prioritising risk diversification and wealth preservation.”
The WMC has opened up significant opportunities for lenders in Hong Kong to tap business from high-net-worth individuals since its creation, with the scheme only set to get bigger in the coming years, according to Peter Kwon, partner and head of the Korea desk at global law firm RPC.
“The Greater Bay Area is a huge economy, valued at $1.8tn and 10 per cent of Chinese GDP,” he said.
“If [the Greater Bay Area] was a country, the economy would be larger than Canada or South Korea. And it’s growing. Hong Kong has the vital role as a superconnector in and out of the mainland.”
Such a role has stoked appetite for further expansions by banks in the territory. Speaking at a Bloomberg event in June, executives from both UBS and HSBC called for greater links between Hong Kong and the mainland to support the needs of their private bank clients.
A Hong Kong Monetary Authority spokesperson said that the WMC scheme has brought new growth opportunities to Hong Kong, and the expanded investor quota and product scope will generate new growth for banks “as they offer a more diverse range of products and services”.
They added that HKMA is “committed to continuously enhance and expand the WMC scheme”, taking feedback from the industry on how to further develop WMC 2.0.
“We would encourage banks to make good use of these enhancement measures and continuously enhance their client service, build staff expertise, and strengthen investor protection and education to capitalise on WMC 2.0,” the HKMA spokesperson added.
The spokesperson for HKBA said their members are already taking these steps: “Banks are stepping up investor education to enhance investors’ knowledge of WMC and products and enable them to better capture the cross-boundary wealth management opportunities.”
The rapid rise of Hong Kong’s status as a wealth management hub has put other global centres on notice. UBS chief executive Sergio Ermotti last month voiced concerns that Switzerland is at risk of being overtaken as the global wealth hub by its Asian rival.
Indeed, Swiss companies are looking at how they can get a piece of Hong Kong’s pie. Private equity firm Partners Group last month opened an office in the territory with a view to expanding its wealth management offering.
“Hong Kong is at the doorstep of China, [where] we see continued growth of GDP and developments of the economy structurally,” Henry Chui, head of the Hong Kong office of Partners Group, told Nikkei Asia. “Hong Kong is a very big beneficiary as a first offshore centre for mainland clients.”
In addition, Chui said that attempts to encourage wealthy individuals in the Middle East to open family offices in Hong Kong was making it a more attractive place to attract global capital.
A study by Deloitte published in March found there are now 2,700 single-family offices in Hong Kong, covering wealth tiers from $10mn through to more than $100mn, of which 885 cater to the more than $100mn category.
Such growth has been supported by proposals in the 2024-2025 Hong Kong Budget to enhance the preferential tax regime for single-family offices. Proposals on the table include reviewing the scope of tax concessions, the types of qualifying transactions, and increasing flexibility on handling incidental transactions.
Kwon says the developments are doing much to allay concerns about Hong Kong’s position in the financial hub following the pandemic.
“Hong Kong is always a transient place. The expansion we see now is really China and the opportunities it’s giving, and it is the Greater Bay Area that is driving growth,” he says.
