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Hong Kong has an open market economy with world-class infrastructure that is conducive to the development and growth of its financial market. Similar to other developed markets, Hong Kong has a judiciary system whereby common law is practiced. Hong Kong has no foreign exchange control, and relative to other neighboring jurisdictions, both financial and human capital can move freely in and out of Hong Kong.
A number of 68 of the top 100 banks have operations in Hong Kong and as at June 2008, there were 1,579 corporations and institutions, and 34,283 individuals licensed or registered with the Securities and Futures Commission (SFC).
Islamic investors seeking investment opportunities can utilize Hong Kong as their platform to manage their wealth and invest in other Asian markets. Our recently released Fund Management Activities survey for 2007 reconfirmed Hong Kong as an international asset management center.
As Hong Kong’s asset management sector continued its strong growth, its combined fund management business reached US$9.63 trillion in 2007. This represents an increase of 56.5% over that of the previous year, and is more than double the figure in 2005.
Furthermore, over 82% of the assets managed in Hong Kong were invested in Asia, reflecting the city’s position as a center for managing investments in the mainland and other parts of Asia. The Fund Management Activities survey also revealed that 68.4% of Hong Kong’s fund management business was sourced from non-Hong Kong investors, indicating large overseas investor participation in the Hong Kong market.
The diversity and depth of investors and market practitioners have enabled Hong Kong to become the eighth-largest stock market in the world by capitalization as at end-June 2008. The Hong Kong stock market can also provide opportunities for Islamic investors interested in investing in the mainland China market, as the Hong Kong stock exchange (HKEx) has become the preferred choice of listing for mainland China enterprises.
Hong Kong’s market innovation
The characteristics of the Hong Kong market have made it one of the forerunners in financial innovation and a testing ground for new investment products. Hong Kong was one of the first jurisdictions to authorize hedge funds for sale to the investing public. It was also the first market in Asia to authorize bond index-tracking exchange-traded funds (ETFs), and the only jurisdiction outside the mainland to operate a renminbi bond market.
Recently, SFC authorized the first gold ETF in Hong Kong. The gold ETF, which is also listed on other markets such as Japan and Singapore, was well received by Hong Kong investors, as the trading volume of the gold ETF reached US$18.8 million on its first day of trading. This trading volume was higher than that for the same fund in Japan and Singapore combined. The listing of the gold ETF once again demonstrates Hong Kong investors’ strong appetite for new products.
Following the Hong Kong government’s commitment to develop an Islamic finance platform, SFC has already taken various initiatives and the Hong Kong market has seen the introduction of several Islamic-related financial products over the past year.
In November 2007, the SFC authorized the first retail Islamic fund for sale to Hong Kong’s investing public. The index tracking fund tracks the Dow Jones Islamic Market China/Hong Kong Titans Index. As at end-June 2008, the fund size had reached US$43 million, up nine times since the initial launch of the fund.
Also, in March 2008, Khazanah Nasional successfully issued US$550 million worth of Islamic exchangeable trust certificates, or Sukuk, on the HKEx. The Sukuk, which is exchangeable into shares of Parkson Retail Group, was well received by investors as the offering was 10 times oversubscribed despite the prevailing market conditions during the first half of 2008.
As a newcomer to the Islamic finance community, SFC understands the importance of establishing and maintaining strong relationships with other Islamic finance centers, to learn and share experiences in developing the Islamic finance sector.
In April 2008, SFC entered into a memorandum of understanding with the Dubai Financial Services Authority (DFSA) for mutual cooperation on capacity building and human capital development of their respective Islamic capital market segments.
Further development of the Islamic finance sector
The recent upgrade of Hong Kong’s long-term foreign and local currency sovereign ratings to “AA+” from “AA” by Standard & Poor’s reconfirms the strong fundamentals of the Hong Kong economy. Hong Kong is well positioned to capitalize on this ratings upgrade not only to fuel the development of its Islamic finance sector, but also to cement its status as an international financial center.
The Hong Kong government and other public authorities, such as the Hong Kong Airport Authority, have been considering the issuance of Sukuk. Hopefully, it won’t be long before we see the first domestic issuance of Sukuk.
Given its position as an international financial center and its commitment, Hong Kong has the strengths and capabilities to develop its Islamic finance sector and contribute to the growth of the global Islamic finance market.
Martin Wheatley, the first CEO of the Securities and Futures Commission Hong Kong, is responsible for developing Islamic finance in the city’s financial markets |
