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Hong Kong the 'Grandmaster' regains footing but Hang Seng's on long road to recovery

Chew Sutat
Chew Sutat2/22/2023 06:14 PM GMT+08  • 12 min read
Hong Kong the 'Grandmaster' regains footing but Hang Seng's on long road to recovery
Hong Kong has gradually reopened following the pandemic but much has changed / Photo: Bloomberg
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Last week, I made my first trip to Hong Kong since the pandemic struck. My last trip, back in 2019, was unforgettable. I was in the incredible 599m-tall Ping An Financial Centre at what is dubbed Shenzhen’s Silicon Valley when I got the news that protesters had stormed the Hong Kong International Airport and forced it shut.

It only dawned on me that the situation was serious when the airport was shut again the next day as I crossed the border back into Hong Kong. The few tourists and businessmen who huddled in the executive lounge of the Conrad Hong Kong at Pacific Place lamented cancelled flights and extended stays. Amid worries over the chaos at the airport, I was consoled by how my favourite Michelin cha chan teng at Central, a stone’s throw from the hotel, no longer had hour-long queues. Or as the lo ban complained, there were no queues actually.

In his panic to get back to Singapore, a friend rerouted himself first to Macau, then Taiwan, then Kuala Lumpur before touching down at Changi. I took my chances and held out for the direct way back home. Once I was escorted through smaller groups of protesters camping at the airport entrance, I found myself in an empty, cavernous departure hall. As I had arrived five hours before my scheduled flight, I gratefully accepted an earlier flight back offered by the unfazed staff crewing the Singapore Airlines (SIA) counter.

For nearly three decades since I started my career in the finance industry, Hong Kong has been a city I visited at least twice a year. Throughout the years, I have also viewed Hong Kong through the textured lens of legendary cinematographer Christopher Doyle, a teammate of equally legendary director Wong Kar Wai.

Unlike Wong’s repertoire of films which ranges from romance to kung fu and sci-fi, mine is the consistent and running theme of rivalry between Hong Kong and Singapore. In my various capacities over the years, I had a hand in deals and actions that added to this rivalry, with both bruises and accolades to show for it.

With my seatbelt fastened, I was filled with mixed emotions. Alongside professional rivalry between the two cities, there is mutual respect too. I, for one, have plenty of good memories and made many friends too. My last meal in Hong Kong was with the chairman of the Chinese Securities Association of Hong Kong. As the plane gained altitude, I had a feeling the place would no longer be the same.

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The last three pandemic years were but the latest in a list of tumultuous events experienced by Hong Kong. There was the fear leading up to the 1997 handover that triggered the flight of both capital and people; there was the 2003 Sars epidemic, which caused a much higher fatality rate in Hong Kong than anywhere else; And as more Hong Kong citizens prioritise politics over business, demonstrations such as the 2014 Occupy Movement took place, inspiring numerous more rounds of street protests after that. For the most part, Hong Kong has always been able to bounce back and reinvent itself.

Yet, Hong Kong this year is at a milestone unlike no other. What was once a rocky outpost turned global financial centre under Britain is now at the halfway mark of China’s 50-year “one country, two systems” assurance. The once-mighty Hang Seng Index (HSI) peaked at 30,000 points before the pandemic and fell to as low as 14,800 last October. It has since recovered somewhat and is taking a breather at around 21,000 but is still midway from its all-time peak. Can this be attained if mask-wearing requirements were dropped? Or, will the kung fu skills of Grandmaster Ip Man — a Hong Kong hero elegantly portrayed by director Wong — help beat away the current doldrums?

Days Of Being Wild

See also: Happy Hong Kong? Singapore's gone laughing to the bank

On my first business trip to Hong Kong, I was privileged to be put up at the Mandarin Oriental by a US investment bank. Everything was a short walk away, from the Hong Kong Club to the Star Ferry Terminal or the “ding ding” tram ride away to Admiralty or Causeway Bay. Hop on a bus at Exchange Square to Stanley, and seafood was savoured on the Jumbo Floating Restaurant at Aberdeen, which sank when towed out to sea during Covid-19. The Western expats had homes on Victoria Peak, Mid-Levels or Discovery Bay. If they strayed from Wan Chai and Lan Kwai Fong across to Kowloon, they could start with high tea at the Peninsular and finish at Temple Street for supper.

In the pre-Covid-19 years, the outlandish conferences organised by CLSA brought in swashbuckling global investors of emerging markets. Such events rolled alongside the Hong Kong Sevens which was once sponsored by Peregrine, then Credit Suisse. With the worst of the pandemic behind us, there is hope for a revival starting at the end of March when a proper Hong Kong Sevens is staged jointly by Cathay Pacific Airways and HSBC. We sorely miss the view of spectators staggering out of the South Stands and strolling past the Jockey Club to Times Square and look forward to being allowed to eat and drink in the stands once again.

Fallen Angels

Plenty has changed in Hong Kong. Chris Patten — the last Governor — had talked about democracy in Hong Kong just before the 1997 handover. At that time, Western ideals and capitalism had worked wonders for Hong Kong’s economy, equivalent to 20% of the rest of China’s. Today, under China’s capitalism with Chinese characteristics, the proportion has shrunk to just 2%, as the rest of China powers ahead.

This time around, I found Hong Kong incredibly quiet. Shops, baggage claim racks and immigration counters were not fully open, even if pre-arrival testing had been lifted. The Airport Express was efficient, but the courtesy buses were cancelled. At Queen’s Road, the Morton’s of Chicago steak house — a landmark of Lan Kwai Fong — has been replaced by the lesser-known Aussie Grill by Outback, offering speedier and cheaper Australian fare. A Cartier boutique located next door is now Love Bonito, a fashion retailer from Singapore. We got a table overlooking the waterfront at a restaurant within the International Finance Centre’s mall with just one day’s notice.

On the night of Valentine’s Day, couples strolled down the Avenue of Stars, enjoying the cityscape’s reflection off the water as they made their way from the K11 Art Mall to the Rosewood Hong Kong hotel. However, the crowd was nowhere near the likes seen in Tsim Tsa Tsui back in the 2010s when mainland buyers lugged back home entire suitcases of cosmetics and trolleys of milk powder. There were two groups at the seafood eateries at Lamma Island, one of which was ours. The SIA lounge next to Gate 5 — where many impromptu networking sessions were held before the return flight — remains shut. It is now a good time to be a visitor to Hong Kong but not a businessman.

Still, my Hong Kong-based friends are full of optimism and positivity. With the worst of the pandemic over, they feel liberated as they can dine out and not be forced to keep to certain hours. Masks are mandatory, but travel is now easier. More importantly, the lifeblood of mainland China visitors is trickling in.

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Yet, from where they were a month ago and myself coming from Singapore, which has been back in business since the second half of last year, it is unavoidable that perceptions differ. As with stock markets, this hope and optimism can be infectious and may be the beginning of a long-awaited business and economic revival without the protesters armed with umbrellas, black t-shirts and riot police with tear gas. However, it will not be a straight line. At 15,000 points, the HSI may be seriously oversold, but the economy will still take time to bottom out.

In The Mood For Love

Few will remember that the ground floor of Pacific Place was a food court. When the influx of Chinese shoppers grew after the Sars epidemic, the space was promptly converted into high-end retail instead. Over at the Mandarin Oriental, where I was put up by the global business I work with, the Captain’s Bar and Man Wah restaurant are bustling with activity as global CEOs resume their travels. It is still a pain for US business visitors as the Biden Administration has imposed PCR tests on travellers from Hong Kong. Ironically, this was the same excuse first used by the Western media to lambast China and Hong Kong for being Covid-19 holdouts. It will be a minor inconvenience if Hong Kong’s role as a Gateway to China is re-validated.

At Davos a month ago, Hong Kong’s Financial Secretary Paul Chan said Hong Kong is ready for a new start as convenient access to the mainland has resumed. Speaking to a room filled with 70 CEOs and entrepreneurs, Chan unveiled scheme after scheme designed to attract global enterprise and talent. However, the view from some executives in that room was that Chan’s hard sell, akin to roses in hand, begged the question of whether the talent had already left.

With the reopening, Hong Kong is in the mood to show its love for global business, but the overlord maintains a constant, forbearing presence / Photo credit: Still image from Wong Kar Wai's movie, In The Mood For Love via Wallpaper Cave.

With attractive expat salaries and financial sector remuneration premiums matched by quality housing, schools, arts and culture, Singapore has become a choice alternative amid the pandemic years. Global talents previously in Hong Kong had either returned home or relocated here. Separately, Chinese entrepreneurs who fuelled the tech and market booms of the first two decades — including Hong Kong’s — appear to be shifting their pink and baby blue Bentleys with their family offices to Sentosa Cove.

In what is a daily reminder of who is the boss, Hong Kong TV stations are now required to play 10 minutes of national songs. For most expats, this is not an issue. Nonetheless, it is a sign of times that rugby played in international schools is now seven-a-side instead of 15, as many expat kids had similarly gone elsewhere with their parents. The US-China geopolitics backdrop does not help. Hong Kong Chief Executive John Lee is also inconveniently on the sanctions list.

Chungking Express

Full recovery will take some time. Just look at shifts in the property sector. Central remains central but no longer as much. New Chinese financial firms found a home at Sheung Wan; hedge funds helped gentrify North Point as they thumbed their noses at paying ever-rising rents in the traditional popular spots. Some Chinese state-owned enterprises are starting to dip their toes, and Middle Eastern funds are looking around for potentially distressed assets at “bargain prices”. Nonetheless, plenty of Grade A properties at Central are still available. A landlord for a Queens Road property started negotiations with “will you stay for a 10% discount” suggesting that 2023 will continue to be soft.

Like the Straits Times Index, the Hang Seng Index has numerous heavyweight property counters trading persistently below their book values. Investors ought to keep an eye on improvements in rents and pick up in asset sales, which will help the market for pure Hong Kong real estate plays.

It could take two more quarters for some momentum to pick up, so unless there is another driver, it could be the fourth quarter this year before another major step up in the index. Meanwhile, the HSI struggles to find the next wind.

Macau, which opened up earlier than Hong Kong, saw 300,000 visitors from the mainland over the Lunar New Year period, giving the economy of the former Portuguese colony a shot in the arm. As the borders between China and Hong Kong similarly opened, 90,000 visitors came across the latter. A consumer business CEO said this data point corresponded with his store sales data for this period, with the mainland impact on Macau a multiple of Hong Kong. The economy has to catch up with the market. Indeed, Hong Kong’s future is inextricably linked to China. The Greater Bay Area project — which groups Hong Kong, Shenzhen and seven other neighbouring cities — is full of promise, albeit delayed by the pandemic and various political protests.

The demographics alone are astounding. Passporting professional services from Hong Kong will create the reverse flow of Hong Kong local talent into China. Property prices will level not with Singapore but with the mainland in time to come.

Halfway To 2046

My Facebook posts on my recent trip to Hong Kong triggered the recollections of an older colleague. He shared how when he made his first trip there; rickshaws were waiting outside the hotel! Wong Kar Wai did something similar with his scifi movie 2046, which features the “Oriental Hotel” that can bring people back to a place where memories can be recaptured. Why 2046, one might wonder? That is just one year before “one country, two systems” reverts to one, and that is also the thesis of this beautifully shot movie showing how one can relive experiences but remain trapped as the past commingles with the future.

Ironically, as I returned to Singapore, news broke that investment banker Bao Fan — dubbed the Jack Ma equivalent of Chinese tech deal-making — had “disappeared”, as had quite a few senior business executives before him. The news sent the market value of Hong Kong-listed but Beijing-based China Renaissance Holdings, the firm he chairs, down by half.

Hong Kong may have reopened and is trying to regain its swagger. But there is no doubt there is a new overlord. For those who sold into the rally, there may yet be better levels to get into the market gradually.

Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore

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