A potent mix of risks, from geopolitical tension to technology disruptions and climate change, is roiling global financial markets, according to the Hong Kong Monetary Authority (HKMA). These issues have increased the need for stronger prudential management to protect market stability.
“Sailing through changes” – the theme for next month’s Global Financial Leaders’ Investment Summit organised by the city’s de facto central bank – will offer the time and venue for banks and money managers to reflect on the upheavals, after overcoming the shocks from the Covid-19 pandemic, CEO Eddie Yue Wai-man said.
“There are loads of different changes on the global level,” he said in an interview with the Post. “We want to discuss how to navigate these changes and build resilience within the institutions to withstand any shocks. We are seeing geopolitics evolving everywhere, whether about elections or the military conflicts.”
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
The HKMA will host the full-capacity summit from November 18 to 20 at the Grand Hyatt Hotel in Wan Chai. Hong Kong’s status as a financial hub and a bridge to China’s markets remains attractive as 300 top executives, including the CEOs of HSBC, Citigroup, Morgan Stanley and Goldman Sachs, have confirmed their attendance.
China last month discarded its “slow-drip” approach to revive its economy, delivering a stimulus bazooka to rescue the nation’s stock and property markets. The U-turn fuelled Chinese asset prices but stunned investors, many of whom have shunned China on policy inertia.
The Chinese government’s about-turn came a week after the Federal Reserve cut its target rate on September 18. It was the first Fed easing move to end a hawkish, tightening drive that began with the “lift-off” in March 2022. Many economists are projecting the Fed to keep cutting in each of its next six meetings up to June next year.
The US will hold the presidential election on November 5, before the Fed’s open-market committee meeting on November 6 and 7.
Yue also highlighted changes on the technology front in pursuit of financial innovation, especially in the use of blockchain, artificial intelligence (AI) and central bank digital currency.
Yue believes these changes will bring in both challenges and opportunities for the global financial sector. Maintaining financial market stability is thus the top priority in his second five-year stint as HKMA CEO. He was promoted to the top post in October 2019.
“We are living in a world of very rapid changes, and these bring uncertainties,” he said. “Maintaining monetary and financial stability remains our top priority. That will also mean making good preparations for contingency plans.”
The HKMA will need to make sure the banking system has sufficient capital and liquidity buffers, a top-notch market surveillance system to monitor the market activity on public exchanges and financial products traded on over-the-counter basis, he said.
The capital adequacy ratio of Hong Kong’s banking system stood at 21.1 per cent in June, higher than every other economy in Asia except Indonesia, according to CEIC Data. The city also sits on one of the world’s 10 largest hoards of foreign currency reserves, at US$422.8 billion at the end of September, a vital financial war chest for defending Hong Kong’s currency peg to the US dollar.
While his top three agenda items will continue to be China, technology and green finance, his focus over the next five years will be “a bit different”, Yue said.
“There was a lot [of work] about facilitating northbound flows, of international investors accessing China’s capital market” over the past five years, Yue said. “In the next five years, there could be more Chinese companies and capital coming out, and [the focus would be] how they can make better use of Hong Kong” as a financial hub, he added.
China’s securities regulator cleared the way in April for mainland based companies to raise capital through initial public offerings in Hong Kong. Foshan’s Midea Group, the world’s largest appliance maker, answered that call last month with a US$4.6 billion stock sale, adding to the steady drumbeat of returning IPOs that may help Hong Kong claw its way back to the world’s top three fundraising centres in 2024, up from last year’s eighth place.
For AI, Yue said it needs to develop with data to make it easier for the public to access official statistics. While cross-border data exchange remains “extremely sensitive and difficult”, the HKMA will still be keen to explore deeper into the matter, he added.
“We will be shifting a bit more from just green into transition finance,” he said. “For Asia, it is a lot more about how to turn current projects involving cement, steel and coal into greener, less polluting forms, and how to finance that,” he said. The HKMA is working more on how to improve disclosure in these areas.
As Hong Kong extends its financial outreach to the Middle East, the city will be aiming to strengthen its support for Islamic finance, starting with the sale of sukuk, or sharia-compliant bonds. This was also mentioned by Chief Executive John Lee Ka-chiu in his annual policy address last week.
“The connection between Hong Kong and the Middle East will be strengthened,” Yue said. “But there are barriers because we do not have a natural Islamic population and demand for these may be more limited than in some other Islamic jurisdictions.”
More from South China Morning Post:
- Hong Kong banks pledge US$47 billion in SME loans after John Lee hears cries for help
- HKMA chief looks to Greater Bay Area, connect schemes in second 5-year term
- HKMA links data platform with Companies Registry to help SMEs open bank accounts
- What would another Fed rate cut in November mean for Hong Kong’s stock market and IPOs?
- Hong Kong property tycoon Peter Lee champions clean energy investments to support charities
For the latest news from the South China Morning Post download our mobile app. Copyright 2024.
