Continuing geopolitical tensions between China and the US are likely to continue to impact Hong Kong’s standing as a financial hub, according to a new report.
US sanctions have impacted investments from the country into China via Hong Kong, according to KPMG’s Asset Management and Private Equity 2024 Outlook.
China’s real estate debt problem and slowing domestic economic growth since last year have also prompted investors to diversify their investments. Private equity funds are now focusing on Japan, South Korea, and India instead of just China, the report said, adding that funds will likely continue to pursue a China-plus-one strategy going forward.
US dollar funds continue to be slow due to the global economic slowdown, geopolitical tensions, and rising cost of capital, while RMB funds have remained relatively buoyant despite the external pressures.
A slew of local players such as HM Capital, Ameba Capital, Hidden Hill Capital, Key Broad Capital, Richen Capital, and Innoangel Fund, among others, have launched or closed their RMB funds within the first few months of the year. With increasing investments by China’s government funds, RMB activity is expected to continue in 2024, the report noted.
Meanwhile, a high-interest-rate environment and subsequent drop in valuations have impacted the initial public offering (IPO) market across the globe. Hong Kong and mainland China markets had a particularly tough year, while Mumbai became the global leader in new stock market listings with more IPOs on its two exchanges than in any financial centre in China.
As Hong Kong’s IPO market is also tied to the fortunes of China’s economy, which is the source of the vast majority of its IPO applicants, its gradual recovery this year may be considerably lower than the average over the last decade, the report said.
There have been efforts early in the year by China’s government to support its stock markets, which could target the renewable energy, healthcare, artificial intelligence (AI), advanced manufacturing, and real estate sectors, potentially boosting its public market performance.
