Nothing gonna change the strengths of our financial centre

Ben Kwok October 31, 2024 22:21

For financial journalists of my generation, we used to feel the boom of Hong Kong as an international financial centre: big mergers, full-house restaurants in Central and shark fins lunch.

Those were the days. In the past few years, it was all the doom. Well, much fewer foreigners are working in Central. Vacancy rate of Grade A offices has reached a record high, and some people on the Internet even lamented Hong Kong has become a financial heritage.

Dr Jim Walker, who has worked in Hong Kong and Asia for 30 years and now chief economist for Aletheia Capital, believes that Hong Kong is still an important international financial centre.

‘Hong Kong is an important place for capital coming in and out from the mainland. Contracts are safe, the rule of law, financial community, currency stability, and the openness to capital inflows and outflows foreign investors value. It is the third most important financial centre behind New York and London,’ he said.

He said those people who are saying bad things about Hong Kong because they do not like the national security laws and China. But he says none of this affects Hong Kong's traditional strengths as a financial centre.

Dr Jim joined CLSA in the early 1990s. In 1995, he predicted the devaluation of the Thai baht, which eventually led to the Asian financial crisis. In 2007, he set up his own firm, Asianomics Group, an independent economic research firm.

He said, ‘I worked for CLSA three times. I miss Gary Coull, the founder of the company. He was a journalist and co-founded Lyons with another journalist, also named Jim Walker. Unfortunately, they both died young, and sadly, CLSA changed when Gary passed away.’

‘I miss those days. It was a very exciting time for CLSA, because I know how they think, and a lot of them went from journalism to stock analysis, because in those days we told stories, we did investigations, we found out what was going on, and we explained it to our clients.’

“Those days, the Wall Street Journal, the Far East Economic Review, the Asian Wall Street Journal, various others really told the story of Asia much better than any of the GDP numbers.’

Back to his core macroanalysis, how much more financial stimulus we need to restore confidence in investing in China markets?

“What we have really been telling our clients as that this is a big signal from Beijing, it's not the kind of signal that many people in the stock market want to hear. But we need to understand about a three-year ongoing adjustment in the property markets on China,” said Dr Jim.

“There is no property crisis in China, because crisis is very quickly addressed by government. So what we need to understand about a 3-year ongoing adjustment in the properties on China. This is the policy action, not crisis.”

Over the past 10 to 15 years, he said the share of real estate investment and GDP went to 15 per cent of GDP. The property crisis showed there was too much reliance for the economic growth and now they have to realign with the economy and continue to handle some problems in the local government area.

With the ratio is now down to 7 per cent, he reckoned the announcement from the Ministry of Finance and the National Development and Reform Commission basically told the market their job was done and people could get back to normal.

He expects 2025 to be a more stable year for China's economy, with good companies making more money. Wetzel, who espouses the Austrian school of economics, believes that economic cycles are driven by profits and investment, and that there will be clearer progress on this front in 2026, when China's economic growth is expected to accelerate to between 6 per cent and 6.5 per cent.

He has been very bullish on the Indian economy for the past two to three years. India will remain an outperformer in terms of the business cycle, but valuations are high compared to China, which has already bottomed out in the economic cycle and has relatively inexpensive valuations. He is now back to overweighting the Chinese stock market.

Dr Jim concluded, “I think the signal has been sent. It is safe to invest in equities. All these years that I've been in stockbroking. I have yet to see foreign know those ahead of the cycle before the foreign investors coming in when the index went up 50 per cent. Locals are always much more on the money, because they know what's going on in the domestic economy.”

Ben Kwok

EJ Insight writer