Hong Kong Business (December 2018 - January 2019)

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FROM THE EDITOR

BUSINESS Established 1982 Editorial Enquiries: Charlton Media Group Hong Kong Ltd 19/F, Yat Chau Building, 262 Des Voeux Road Central Hong Kong. +852 3972 7166

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Welcome to Hong Kong Business. As part of our annual tradition, we bring you fresh investment ideas to welcome the new year. We talked to experts, bankers, and investment firms as we rounded up ten promising investments ideas that could help boost your finances in 2019.

Hong Kong’s almost 10- year housing market bullrun looks like it is coming to an end. House prices are expected to fall by 15% in 2019, but in the worst case scenario that stock markets continue to slump and trade tensions escalate, home prices could crash by as much as 25%, according to real estate consultant JLL. Given this backdrop of declining home prices, analysts foresee developers rolling out more incentives to lure buyers. Is it the best time to buy?

Over at the art scene, the on-going trade spat between US and China has claimed an unexpected victim: Hong Kong’s auction houses. Christie’s Hong Kong 2018 autumn auctions raised $2.75b across 17 sales in late November, an 11.6% fall from the $3.11b raised over its spring 2018 auctions. Much of the decline, according to analysts, can be attributed to the sour sentiments of collectors who are taking a more cautious stance amidst the on going economic uncertainty. Can they recover in 2019?

This issue also bears the coverage of the inaugural Hong Kong Business Management Excellence Awards held at the Conrad Hotel, Hong Kong. Eleven outstanding business leaders and firms were lauded for their initiatives that have brought tangible business gains for their company’s operations.

Flip the pages to find out the big winners.

Enjoy the issue!

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HONG KONG BUSINESS | JANUARY 2019

1

CONTENTS

COVER STORY

24 Where to park your money in 2019 FIRST 06 Up to 4% salary hike awaits

as home prices slide

10 Auction houses in Hong Kong suffer

heavy losses

36

EVENT COVERAGE Hong Kong’s most outstanding companies lauded at the HKB Management Excellence Awards 2018

RANKING

FINANCIAL INSIGHT 14 Hong Kong M&As slump in 2018

tech workers

07 Blockchain-powered trading 08 Huge discounts await buyers

18

CEO INTERVIEW Mercedes-Benz Hong Kong CEO Frederik Gollob shares his key focus and passion

28 Restriction on foreign lawyers

hits legal industry

32 Insurtech, hiring spree shape

Hong Kong’s insurance scene

REGULAR 20 Economy Watch

OPINION 42 Why are Hong Kong students

still going to British universities?

44 No haven for home-seekers

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 19/F, Yat Chau Building, 2 HONG KONG BUSINESS | JANUARY 2019 262 Des Voeux Road Central, Hong Kong

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News from hongkongbusiness.hk Daily news from Hong Kong most read

Economy

Residential PROPERTY

US-China trade war will divert trade and investment to ASEAN: analyst

Here’s why Wanchai offers a reprieve from Hong Kong’s crowded CBD

Bull-run finally ends: Hong Kong home prices to fall 15% in 2019

Countries part of the Association of Southeast Asian Nations (ASEAN) will benefit from the US-China trade war which will divert trade and investment to the region in a bid to circumvent the high tariff walls, according to a report by Maybank.

Whilst Hong Kong’s Central remains as the top location for financial and technology occupiers, investors may be eyeing opportunities in fringe areas along its Central Business District (CBD) due to their fluid markets, Colliers said in a report.

The freewheeling days of Hong Kong’s residential market are finally coming to a close as home prices in the world’s most expensive property market are expected to fall 15% in 2019, according to real estate consultant JLL.

Financial services

Banks rev up fintech partnerships to keep China’s tech titans at bay With the global growth momentum shifting towards Asia, financial institutions are increasingly forging closer ties with the fintech firms challenging their dominance as they bid to stay relevant for a rapidly changing customer base. Incumbents are launching VC arms and innovation labs to stay relevant.

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commercial property

HONG KONG BUSINESS | JANUARY 2019

Residential PROPERTY

Property sales plunge 48% in November Hong Kong’s real estate market continued to weaken as property sales plunged 48% YoY and 26.4% MoM to 3,953 sale and purchase agreements in November, according to a government statement.

The total consideration for sale and purchase agreements in November hit $43.3b which represents a headline figure down by 35.1%.

Financial Services

Singapore beats Hong Kong in Asia’s open banking readiness rankings Hong Kong failed to chip away at Singapore’s dominance as it settled for third place in the open banking readiness index compiled by Fintech firm Finastra. With a score of 6.6, Hong Kong trails behind the Lion City which holds an index reading of 8.1 and Australia at 7.1 but outpaced the Asia-Pacific average of 5.8.

FIRST their virtual banking licenses and are required to comply with e-banking regulations.

Paying Top Dollar

Shanghai has dethroned Hong Kong as Asia’s most expensive city, but the territory still has the region’s costliest real estate market. Julius Baer’s latest Wealth Report shows that Hong Kong has slipped to third place on a price-weighted basis, whilst Singapore rose from third to second on the back of a stronger Singapore dollar.

Shanghai is the most expensive city to buy six out of the 22 items analysed by the report: hospital rooms, watches, handbags, wine, jewellery and skin cream. And despite its reputation as one of the most expensive cities in Asia, luxury items such as skin creams, jewellery, wine, ladies shoes, watches and men’s suits were relatively inexpensive in Hong Kong, the report found.

“Our basket of goods and services rose by 2.2% in Hong Kong, with prices for most items stable YoY,” Julius Baer said in its report. “Hotel suites (10.6%), jewellery (9.5%) and ladies handbags (6.6%) were exceptions, experiencing strong inflation.”

Still, Hong Kong remains the most expensive city to purchase a high-end property in Asia. Over the past year, property prices continued to climb, reaching $424,042 psm, outpacing Tokyo ($319,404 psm. “Strict capital controls and changes in tax rules have not deterred Chinese capital inflows.

This, coupled with limited supply of luxury properties, has led prices to rise,” the report noted.

In a bid to address skyrocketing housing prices, Hong Kong looks set to introduce a 5% tax on properties left vacant for more than six months after the occupancy permit grant.

However, its effectiveness remains to be seen and the tax is not expected to affect property prices significantly.

“Consumer prices in Hong Kong are expected to increase by 2.5% in 2018, falling to 2.0% in 2019. The impact of rising global energy costs is dampened by the appreciation of the HKD against the CNY, which results in lower cost of imports from the mainland,” the report noted.

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HONG KONG BUSINESS | JANUARY 2019

Salary premiums in small markets with limited workforces may hit up to $40,539 annually by 2030

Up to 4% salary hike awaits tech workers

M

ore companies are beefing up their payrolls in a desperate bid to retain and attract talent. Tech professionals can expect particularly lucrative offers from both startups and multinationals as more financial institutions pour funds into fintech initiatives. “Talent specialising in cyber and data security is expected to be in high demand as companies seek to keep operational risks in check,” said Ricky Mui, director for legal & compliance and commerce finance & contract division at Robert Walters Hong Kong. “We anticipate an increase in the adoption and integration of technology solutions in financial service institutions, in areas of automation, cloud-based applications and data analytics particularly,” he said.

As a result, sectors such as artificial intelligence, automation and fintech will see salary hikes of up to 3.8% to 4.1%, with both large and small firms willing to pay premium for talent.

The demand will be driven in large part by fintech, as banks apply for

Sectors such as artificial intelligence, automation and fintech will see salary hikes of up to 3.8% to 4.1%, with both large and small firms willing to pay premium for talent.

Edging out the competition “The fintech, banking, retail and food & beverages industries along with startups have faced stiff competition under a candidate-short market.

Hence, some have on some occasion paid above the market rate to attract talent,” noted Peter KH Chan, talent consultant at Mercer.

Data from business consulting firm KornFerry shows that salary premiums in small markets with limited workforces may hit up to $40,539 annually by 2030 in an effort to retain skilled workers. Hong Kong could expect salary premiums equivalent to more than 10% of their respective 2017 GDPs as companies beef up their payrolls to keep highdemand workers within their teams.

But offering fat paychecks isn’t enough to lure candidates, experts warn. “Aside from salaries, candidates would also evaluate the whole employment package such as attractive benefits, work-life-balance, employer branding, flexibility, working environment, accelerated career paths and attractive titles that are more superior than large conglomerates or MNCs,” Chan said.

Chan adds that employers will need to be creative to come up with hiring propositions that attract the most active workforce - the millennials and keep them engaged, Chan noted.

“Employers who are open to integrating popular technologies and platforms into the workplace can have a powerful advantage in attracting and retaining talent – millennials in particular,” Mui echoed.

Banking and finance services

Source: Michael Page Hong Kong

FIRST

HKMA teamed up with seven banks to launch eTradeConnect

Blockchain-powered trading

I

n a bid to close the fintech development gap with regional rival Singapore, the Hong Kong Monetary Authority (HKMA) has teamed up with seven domestic banks to launch the territory’s first blockchain-powered international trade finance platform.

The platform, known as eTradeConnect, will be powered

by OneTradeConnect, a fintech subsidiary of Ping An Insurance Group.The platform aims to improve trade efficiency, build better trust amongst trade participants,

The platform aims to improve trade efficiency, build better trust amongst trade participants, reduce risks and facilitate trade counterparties to obtain financing by digitising trade documents, automating trade finance processes and leveraging the features of blockchain technology.

reduce risks and facilitate trade counterparties to obtain financing by digitising trade documents, automating trade finance processes and leveraging the features of blockchain technology.

“This is also a first for the Asia Pacific region, which is a credit to the HKMA and banking industry,” said Jessica Tan, Ping An Group Deputy CEO, COO and CIO. Leveraging blockchain’s distributed ledger technology, financial institutions will potentially be able to access real-time, secured and

comprehensive trade information to conduct their risk assessment on loans. The blockchain technology will also enhance efficiency and potentially reduce financial costs for companies by digitalising trade documents in trade loan applications.

“Our next key milestone is to link eTradeConnect with platforms from other regions in order to enable cross-border trade financing. The connection between eTradeConnect and we.trade platform paves the way for the digitalisation of cross-border trades in the Asia and Europe trade corridor, and will serve as a good reference for the future connection of eTradeConnect to other trade finance platforms,” said Howard Lee, Deputy Chief Executive of the HKMA. At present, eTradeConnect and European platform we.trade are conducting a proof of concept on connecting the two platforms.“This exciting collaboration has the potential to unlock trade finance barriers for between Europe and Asia and through interoperability create an ecosystem that combines all the different stages of trade,” said Roberto Mancone, Chief Operating Officer of we.trade. Participating banks include Australia and New Zealand Banking Group Limited, Bank of China (Hong Kong) Limited, The Bank of East Asia Limited, DBS Bank (Hong Kong) Limited, Hang Seng Bank Limited, HSBC, and Chartered Bank (Hong Kong) Limited.

The Chartist: WHY HONG KONG IS STILL LESS PROSPEROUS THAN SINGAPORE Hong Kong is a step behind regional rival Singapore when it comes to overall prosperity, according to the 2018 global prosperity index compiled by British-based Legatum Institute.The territory was ranked 22nd out of 149 countries on the back of improving scores in personal freedom. On the other hand, Singapore was ranked 21st, driven by a strong healthcare system and improved economic equality.

Hong Kong was ranked 7th worldwide in terms of business environment, and it also nabbed the 4th spot in terms of safety and security. Governance and education score are at 30th and 23rd respectively, driven by the city’s concerted and industry-wide efforts to remain competitive and business-friendly. However, Hong Kong ranked poorly on the natural environment pillar (86th).

Comparison between Hong Kong and Singapore

Source: Legatum Institute

Country rankings: Legatum Prosperity Index 2018

Source: Legatum Institute

HONG KONG BUSINESS | JANUARY 2019

7

FIRST SURVEY

Retirement woes plague elders

Huge discounts await buyers as home prices slide

H

Almost half of senior employees are willing to sacrifice part of their wages for a better retirement benefit scheme, a study by global advisory firm Willis Towers Watson found.

Only 1 in 3 employees are confident that they have enough resources for a comfortable retirement, whilst a staggering 54% say that they are willing to keep working for some time before their full retirement.

The study revealed that a majority of Hong Kongers do not prioritise finances geared towards retirement until they reach their 40s. “Employees at age 40 and above have stronger desire to save for retirement but starting from age of 40 is already quite late to accumulate adequate amount,” noted Elaine Hwang, head of retirement at Willis Towers Watson.

Hwang added that employees have been eyeing for their employer’s retirement plans as their primary means for retirement finances. In fact, 4 in 10 employees said that they are willing to shred a part of their paychecks for better employerprovided retirement benefits whilst 30% revealed that they are up for paying more on a monthly basis for a more generous healthcare plan.

“The HKSAR Government’s recent proposal to increase the relevant income cap and to offer tax incentive to employee voluntary contributions in the Mandatory Provident Fund (MPF) plans have coincidently addressed this needs to a certain extent, and demonstrates Government’s ongoing commitment of encouraging retirement savings,” Hwang commented. A survey by AllianzGZI revealed that Hongkongers expect they would need $16,950 a month to lead a comfortable retired life and see savings of $5m as ideal to sustain 14 years of retired life.

However, employees expect to save only $3.15 million, leaving a shortfall of $1.83m. The survey also showed that respondents have postponed their planned retirement to 62.4 because of the high cost of living and inflation.

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HONG KONG BUSINESS | JANUARY 2019

ouse prices are expected to fall by 15% in 2019, but in the worst case scenario that stock markets continue to slump and trade tensions escalate, home prices could crash by as much as 25%, according to real estate consultant JLL. Given this backdrop of declining home prices, analysts foresee developers rolling out more incentives to lure buyers.

Vanke Properties (Hong Kong) reportedly offer buyers of its LePont project in Tuen Mun a lower mortgage rate in October. Meanwhile, a number of developers have even resorted to slashing their selling prices with Paliburg Holdings and Regal International trimming as much as $10m off the selling price of one of their 12 unsold Yuen Long villas to $29.4m.

Another private developer owned by Kwok Kwei-wo and Tang Yuk-kwei have also discounted two units of their village houses in Yuen Long by about 20% after holding on to the units for two years.

Although official prices have been declining since August, buyers are hesitating as they expect a steeper price correction. “With an increasing number of buyers adopting a wait-andsee attitude, developers have softened

Vanke Properties (Hong Kong) reportedly offer buyers of its LePont project in Tuen Mun a lower mortgage rate in October.

asking prices to offload stocks,” noted a report by Henry Mok and Cherie Tang of JLL Hong Kong.

Intensified cost pressures The pessimism in the primary market will inevitably spread to the resale segment. “The pressure on sellers to lower prices in the secondary marketwill only intensify. Furthermore, developers have sought to capture demand from the secondary market by offering more financing incentives such as loans with loan-to-value ratios up to 80% and aggressive sales strategies like extended payment periods. In some instances buyers have been allowed to occupy the unit before final payment,” Mok and Tang said.

“Hong Kong’s almost 10- year Hong Kong’s housing market bull-run looks like it is almost 10year housing coming to an end. With housing prices starting to slide, the Government needs market bullrun looks like to urgently re-asses some of the cooling it is coming to measures that it has introduced over the years,” Mok and Tang noted. an end.

Mobile App Watch

Oriente joins microlending race to tap SEA’s unbanked Microlending startup Oriente has raised $105m in its latest funding round from Malaysia’s Berjaya Group, the Philippines’ JG Summit Holdings and Indonesia’s Sinar Mas as it jostles against other fintechs tapping the unbanked demographic in Southeast Asia.

Oriente provides microloans to individuals and businesses through a mobile app. Founded in 2017 by former Skype co-founder Geoffrey Prentice; former Lu.com COO Hubert Tai and Lawrence Chu, founder of BlackPine Private Equity, Oriente enables users to apply for a loan and receive financing within minutes. “Oriente was founded on the principles of inclusion and innovation to open financial access, freedom and opportunity for underserved people and micro-entrepreneurs,” Prentice said. He banks on Oriente’s sophisticated risk control algorithm that helps keep the default rate at around 1%.

Geoffrey Prentice

FIRST

Hong Kong’s auction houses suffer heavy losses amidst trade spat

T

he on-going trade spat between US and China has claimed an unexpected victim: Hong Kong’s auction houses. Christie’s Hong Kong 2018 autumn auctions raised $2.75b across 17 sales in late November, an 11.6% fall from the $3.11b raised over its spring 2018 auctions. Much of the decline, according to analysts, can be attributed to the sour sentiments of collectors who are taking a more cautious stance amidst the on going economic uncertainty brought about by the trade war.

Global uncertainties “The sentiments of collectors are hugely tainted by the uncertainty towards the current economic and business outlook given the embarrassment of the China-US relations. Collectors in Mainland China and in Hong Kong are generally secure in terms of financial standing but they are becoming more astute,” noted Henrietta Tsui-Leung, founder of Galerie Ora-Ora. Tsui Leung noted that Chinese collectors are not only becoming more cautious. Their tastes for the arts are also changing.

Aside from Christie’s, a similar market inflection could also be observed at Phillips’ auctions. In November, Phillips raised a

dismal $305.88m over four auctions, down 28.5% compared to its haul in May and slightly lower than the $318.07m raised at its November 2017 sales with only three auctions.

Good start, bad finish At the start of the autumn sales in September, the art market in Hong Kong was still going strong with Sotheby’s raising $3.64b, similar to the amount achieved at its spring auctions and a 15% increase on its 2017 autumn sales. But a closer look at the details may have hinted at what was to come, as several of the top lots sold below their upper estimate. Meanwhile at Poly Auction, China’s biggest auctioneer, the takings were down 50% at just $900m year-on-year and were also down from the $1.25b raised in the spring.

Bleak outlook?

Jonathan Crockett, Deputy Chairman and Head of 20th Century & Contemporary Art, Asia at Phillips, said it was premature to make any specific comments on the longterm impact of the US-China trade tensions on the art market in Asia. And whilst he expressed concern about the rising tensions and the uncertainty it creates in the market,

Sotheby’s auction

he pointed out that Hong Kong is now such an important art market on the global stage that buyers and sellers there come from every part of the globe, not just Asia.

“The auction world – like every other part of the global economy – reacts to political and financial change. There are, of course, uncertainties in both spheres, but we have experienced uncertainties in the past and we know that high quality pieces at realistic estimates will continue to find buyers. The challenge for us remains to work hard and continue to deliver what collectors want,” noted Edward Wilkinson, Executive Director of Bonhams Asia.

As for Tsui-Leung a silver lining lies in the openness of the contemporary art market to the new breed of collectors , noting that a “conservatively positive” can still be seen for 2019. Market participants were quick to point out that results can be skewed from year to year by a few big lots or other factors, including the varying desirability of art works on offer.

OFFICE WATCH

Check out nakedHub’s sleek Kwun Tong centre As cash-short companies pack their bags out of costly Central to look for cost-efficient commercial space alternatives, naked Hub@Two Harbour Square is increasingly positioning as an attractive option for firms hopping on the office decentralisation bandwagon.

Located on 180 Wai Yip Street, Kowloon East, nakedHub’s third location in Hong Kong features over 900 desks across two wide floors for a total gross floor space of 58,000 square feet.

Decorated with a dash of calming browns and funky patterns, the lounge offers a space where tenants can interact and network while also offering a hole-in-the-wall alternative for those seeking a little private time. Work stations are decorated in subdued blues and violets to boost productivity. naked Hub@Two Harbour Square also features a 3,200 square foot rooftop terrace with a fantastic harbour view that could be used for entertainment, external private bookings and wellness events.

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HONG KONG BUSINESS | JANUARY 2019

Lounge

Roof deck

Workstation

Fitness Centre

startups

Ztore.com hauls $62m in series B

O

nline shopping platform Ztore. com has raised over $62m (US$8m) in series B funding round led by Welight Capital and Kwai Hung Group in October to help fuel its bid to bring Hong Kong brands to the global stage. Founded in 2015, Ztore. com was able to make its mark through its unique vision of providing an online platform for local brands and SMEs. By communicating the value of homegrown brands through innovative storytelling methods in their marketing campaigns, Ztore is able empower the 330,000 SMEs in the city that account for 98% of total enterprises.

With over 1,000 Hong Kong-

based products to choose from, Ztore users have grown significantly to hit 200,000 within 24 months as residents acknowledge the merits of the platform’s premium product selection.

The startup will use the funding proceeds to launch Ztore App as well as a revamped website powered by a new algorithm that helps predict customer preferences to recommend the best products to buy. Ztore will also work on its in-house R&D to advance its warehouse and logistics management system. “We will be able to advance our operating systems, develop new technologies to enhance the shopping platform, and launch new services. At the same time, we strive to lower our logistics costs and pass those savings along to customers to ensure they reap the benefits of shopping at Ztore.com,” said Danny Shum, co-founder and CEO of Ztore.com. “We are a true believer in the team who delivers a better living to Hongkongers. We are very positive about the prospects of Hong Kong e-commerce, and are delighted to support Hong Kong startups with great potential such as Ztore,” said Free Wu Xiaoguang, co-founder of Welight Capital.

Baby Basics aims to be a one-stop online portal for all your infant essentials warm response to its online shopping site (babybasicshk.com), the sisters unveiled a brick and mortar store in Lansing House, Central fully stocked with well-loved baby brand names from the UK and Europe. “[Beyond] providing bespoke customer service for everyone we also wanted to create a space for our community in the form of our new Central store. Our Incubated and nurtured by infant retail industry veterans and sisters Arati Limbu space is not only for shopping but also and Anuradha Limbu Chettri, Baby Basics welcomes parents and children who are looking for a place to relax, we have came to life after their previous place of a designated area for this purpose,” employment, Bumps to Babes, closed Anuradha told Hong Kong Business. down in March 2018.

The store also houses an in-store The sisters moved quickly to plug breastfeeding facility for mothers looking the gap in the market and create a for a private room to take care of their space where parents can easily shop baby’s nutrient requirements. “We also for their infant and toddler needs. Arati welcome working mums who may want and Anuradha purchased 20% of the to pump milk in privacy [since] a lot of best-selling products from the Bumps work places do not have this facility to Babes liquidation sale and hired a leaving mums to pump in workplace number of their ex-colleagues to sustain restrooms,” she added. the business momentum. Following the

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HONG KONG BUSINESS | JANUARY 2019

Alphaslot makes a bet on blockchain-powered casino

Hong Kong-based startup Alphaslot has raised millions in a funding round led by China’s Sora Ventures as it seeks to build a blockchain-based gaming ecosystem and dive headfirst into a market that is expected to exceed US$130b by 2018.

“New technologies such as 3D and VR are widely applied in the industry, but the market remains frustrated in its efforts to develop new clientele. The rise of blockchain technology, however, will break these hurdles and usher the global entertainment gaming industry into a new interactive era,” Raymond Chan, CEO of Alphaslot said at the Global Digital Entertainment Summit 2018 in Macao.

With the vision of ‘tokenising’ casino gaming, Alphaslot aims to be enable players to better manage their games and assets. Through distributed ledger technology, the startup significantly facilitates the gaming process through the speed, security and traceability of the tech.

Alphaslot will also be launching its own utility token called SLOT that can be used for in-game purchases to unlock new features or games. Users can also work on their personalised avatars.

“Alphaslot provides a brand-new solution while serving as the bridge that allows blockchain mutual support and transaction, effectively consolidating e-sports and all entertainment gaming venues, integrating the online virtual environment with the physical environment, creating a world of entertainment with 100 million participants annually,” Chan explained.

Future plans Although the startup is initially making a bet on the casino sector, Alphaslot aims to make its mark on the entire gaming market from social, esports to console gaming. The startup also aims to develop its own purpose-built blockchain protocol for data and token management as it looks to graduate from building on the Ethereum blockchain and the associated costs and on-chain storage demands.

Hong Kong’s Credito Capital and Shinobi Capital, Singapore’s Spartan Group, Netherland’s TRG, and Silicon Valley’s Primitive Ventures, also saw promise in the startup’s vision and participated in the funding round.

“Currently the blockchain technology is limited by the lack of interoperability, low TPS and small block size.

Alphaslot provides a brand-new solution to solve these problems. Alphaslot is committed to building a bridge that connects different blockchain systems to create a closely connected gaming world,” added Chan.

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FINANCIAL INSIGHT: Mergers and acquisitions

Deal #1: Goodwin Gaw, Managing Principal and Founder of Gaw Capital Partners

Deal #2: Goldman Sachs, Sequoia Capital and Boyu Capital that acquired travel booking services provider Klook Travel Technology

Hong Kong M&A activity slumped in 2018 Mergers and acquisitions deals fell to 1,050 transactions with a combined value of US$87.93b in 2018, down from 1,252 transactions with a combined value of US$108.28b in 2017.

M

&A activity in Hong Kong suffered both in volume and value as geopolitical and regulatory headwinds weighed on dealmaking interest.

Mergers and acquisitions where Hong Kong financial firms were targets fell to 1,050 transactions with a combined value of US$87.93b in the first eight months of 2018, from 1,252 transactions with a combined value of US$108.28b in 2017, according to Thomson Reuters data .

However, analysts have ruled out a steeper decline in 2019 and instead forecast a mostly steady performance as private equity interest, amongst other factors, look to provide a substantial lift in the coming year.

The megadeals in the telecoms sector that bolstered dealmaking value in 2017 may have dissipated, but China’s technology giants have gone on an acquisition spree and sectors such as real estate have seen greater activity which has mitigated the slowdown as firms and investors adopted a more careful approach.

“In the private sector, as boardrooms contemplate sky high multiples and a possible correction in the global markets, nervousness is translating into fewer strategic deals. Deal volumes have slightly declined this year as compared to 2017,” said Bryan Koo, partner at Clifford Chance. “That said, this year we saw a more stable flow of M&A activities across the year and, from the third quarter of 2018 onwards, we are seeing more activity in the Hong Kong public M&A space, including takeovers of

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HONG KONG BUSINESS | JANUARY 2019

Nervousness is translating into fewer strategic deals.

Hong Kong-listed companies,” he added, citing GuoLine Overseas Limited’s proposed privatisation of Hong Kong-listed Gupco Group Ltd and Swire Pacific’s $9.4b privatisation of HAECO, Swire Pacific’s subsidiary that operates an aircraft maintenance business.

Most notable deals Some of the most notable M&A deals in the Hong Kong market in 2018 included various venture capitalstyle pre-IPO investments dominated by or linked to Chinese technology giants Baidu, Alibaba and Tencent, according to Koo. GIC, Temasek, Warburg Pincus, Khazanah Nasional Berhad, Carlyle, Canada Pension Plan Investment Board and others have acquired an undisclosed stake in a subsidiary of Ant Financial, in a funding round estimated at US$14b, valuing Ant Financial at US$150b.

Meanwhile, Tencent-led group comprising Chinese banks, Chinese private equity and venture capital firms acquired an undisclosed stake in UBTECH Robotics, the China-based humanoid robots manufacturer, for US$820m. There was also Ant Financial’s strategic partnership with and 20% stake investment into OpenRice, Hong Kong’s most popular online restaurant database and review service, for an undisclosed amount.

“These deals demonstrate that investors remain willing to deploy into the Chinese tech and fintech sectors,” said

FINANCIAL INSIGHT: Mergers and acquisitions Koo, further noting that private equity investors have been increasingly banding together in deploying their capital.

A couple of notable deals tracking this trend include a private equity consortium comprising Goldman Sachs, Sequoia Capital and Boyu Capital that acquired Hong Kong-based travel and tour booking services provider Klook Travel Technology for $200m, and a consortium led

by Hong Kong-based Gaw Capital Partners that acquired a property portfolio that includes 17 Hong Kong shopping centres for $23b from Link REIT. Koo also highlighted a reorganisation drive amongst state-owned enterprises as a key driver for M&A transactions in 2018, as seen in COFCO Property’s proposed acquisition of a 64.18% stake in Joy Hong Kongbased listed City Property from COFCO Corporation, as well as Shenzhen Chiwan Wharf Holdings’ proposed acquisition of 38.72% of Hong Kong-based listed port operator and investor China Merchants Port Holdings from China Merchants Investment Development.

The most active sectors in 2018 have been telecommunication, media and technology, property and construction, and transportation and logistics, according to Koo, with such deals as Lai Sun Development’s voluntary general cash offer to acquire eSun Holdings, JD.com’s investment in China-based warehousing infrastructure and facilities development solutions provider ESR, and Carlyle and Tiger Group’s disposal from Greater China Intermodal Investment to Seaspan.

“In terms of industry sectors, we have seen strong interests in power and utilities, natural resources such as petroleum and natural gas and, consumer products” in the first nine months of 2018, said Bernard Poon, transaction advisory services leader, Hong Kong & Macau Region at EY. He reckoned investors spent the year focusing on companies with strong technology capabilities, such as in analytics, artificial intelligence and instantaneous data gathering, to improve decision making and boost company performance. “We observed that the transactions activities in the Hong Kong financial services sector has been very active in 2018, with a number of M&A deals covering areas such as asset management, banks, alternative financial investments, credit institutions, insurance companies,” he said, adding that for investors from Greater China, Europe was the most popular investment destination, in terms of investment amount. There has also been significant growth in investment activities in Australasia.

Domestic and cross-border deals Domestic M&A deal activity fell during the period, with deal volume sliding to 331 transactions with a combined value of US$21.85b from 417 transactions with a combined value of US$29.77b. Cross-border M&A deal activity also declined, with deal volume dropping to 719 transactions with a combined value of US$66.08b from 835 transactions with a combined value of US$78.51b.

Cross-border inbound M&A deal activity, which includes targets in Hong Kong and acquirers outside the island, fell to 235 transactions with a combined value of US$20.76b in the first eight months from the same period last year. The financials sector saw the highest number

Bryan Koo

Bernard Poon

Tracy Wut

and value of cross-border inbound M&A deals at 55 transactions with a combined value of US$4.52b, after the same period last year saw six telecommunications deals with a combined value of US$13.12b dominate the category. Acquirers from Mainland China continued to lead the pack, accounting for 136 deals with a combined value of US$12.51b, although down from 161 deals with a combined value of US$20.84b the prior-year period, according to Thomson Reuters data.

The top cross-border inbound M&A transaction so far was the Netherlands’ L’Arche Green NV’s pending acquisition of CRH (Beer) Ltd with a value of US$3.10b inclusive of net debt, followed by China’s Shanghai RAAS Blood Products’ pending acquisition of Tiancheng International Investment Ltd with a value of US$2.52b.

Cross-border outbound M&A deal activity, which includes acquirers from Hong Kong and targets outside the island, likewise decreased to 484 transactions with a combined value of US$45.32b in January to October from the same period in 2017. The real estate sector saw the highest number of transactions by volume at 72, while the energy and power sector recorded the largest value at US$18.40b across 57 deals. Transactions targeting Mainland Chinese firms continued to represent the lion’s share in terms of volume at 280 with a combined value of US$14.99b, but deals targeting Australian firms accounted for the highest combined value of US$18.61b, more than doubling from the year-ago period, Thomson Reuters data showed.

The top cross-border outbound M&A transaction was the Investor Group’s pending acquisition of Australia’s APA Group with a value of US$16.83b, by far the largest in the first eight months of 2018. The next biggest deal was CK Hutchison Holdings Ltd’s acquisition Italy’s Wind Tre SpA with a value of US$2.85b.

“The escalating US-China trade tension and heightened regulatory scrutiny is weighing down on deal making. Given such economic uncertainty, it is no surprise that there has been a general slowdown in deal activities,” said Tracy Wut, an M&A partner in Baker McKenzie’s Hong Kong office.

Analysts expects risks on both geopolitical and regulatory fronts to persist in 2019, with the former

M&A Deal Activity in Hong Kong

Source: BakerMcKenzie

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FINANCIAL INSIGHT: Mergers and acquisitions constraining Hong Kong’s economic growth and consequently curb dealmaking activity. However, Mainland China and private equity should lead the charge in firing up deals, helping offset such headwinds. “Investment sentiment will be cautious in light of the trade war between China and the U.S., the uncertainty and geopolitical tensions and we expect M&A activities in HK to remain at a steady level in 2019,” said Poon.

Koo, meanwhile, expects big data and solutions to continue being a key driver for M&A deals, after a year which saw large deals in the space such as Tencent’s acquisition of New Classics, HKBN’s acquisition of Hong Kong-based cloudpowered solutions provider I-Consulting, and CITIC Capital’s acquisition of CEIC Data.

“As the competitive pricing in the public market continues, we are seeing a lot of privatisation and takeovers of listed companies in the pipelines and growing interest of private equity players on listed assets,” added Koo, citing PAG’s hostile conditional voluntary general offer for all the outstanding units in Hong Kong-listed Spring REIT and the proposed merger between WTT HK and HKBN. M&A dealmakers in Hong Kong will also have to navigate tightening regulation. Koo cited the Hong Kong Stock Exchange’s intent to clamp down on what it perceives as abuses related to reverse takeovers, or RTOs, to circumvent requirements for new applicants under the bourse’s listing rules. He said the exchange will look to consolidate and fortify the RTO rules to prevent backdoor listings, with modifications to enhance the anti-avoidance effect as well as to tighten the continuing listing criteria for listed issuers to deter the manufacturing and maintenance of listed shells.

Another key regulatory challenge is compliance with the General Data Protection Regulation, or GDPR, which came into force May 25 and covers all firms with establishments in Europe or provide goods and services to individuals in the region. “Its extraterritorial application means that Asia Pacific-based companies with no presence in the EU will be caught by the GDPR if they provide services into the EU or where personal data is obtained in the EU and transferred outside.” He noted recent studies which show many companies within the GDPR’s scope will not be compliant by the end of 2018, and reckoned “the compliant aspects of M&A targets and any integration will need to be thoroughly considered.”

Koo also flagged the potential impact of U.S. export controls on M&A targets which historically export to the U.S. “Any such impact on valuation of the business may slow down M&A deals involving such targets,” he said, noting that the U.S. enacting the Foreign Investment Risk Review Modernisation Act will require mandatory declarations of transactions of certain nature and increased compliance risks, especially for companies dealing with leading-edge technology. “Regulations in China such as the restrictions of funds coming out from the mainland had a negative impact on the M&A activities in HK. In addition, it has become more difficult for investors from the mainland to identify investment opportunities in HK given the size of the market and the relatively smaller scale of operations of the potential target companies in HK when compare to the western countries,” said Poon.

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Singapore view

M&A deal activity stutters In 2018

W

hilst acquisitions by Chinese companies in Singapore continued to dominate in 2018, the trend has slowed compared with recent years, possibly due to an overall decline in outbound investments

by China enterprises, said Tan Chee Yang, head of mergers and acquisitions, group investment banking at UOB. Analysts traced the decrease in outbound investments from Chinese firms to the tighter regulatory regime surrounding such deals. Foreign acquisitions, remittances, money exchanges and other outbound transactions of more than US$5 million became subject to mandatory pre-screening by regulators which started November of 2016.

“China’s capital controls are taking a visible toll on its companies’ investment activity abroad and discouraging foreign multinationals from pumping money into the world’s second-largest economy,” said Matthew Gorman, partner at Reed Smith LLP. “We understand that regulators have also indicated that real estate, hotel, entertainment, film, sports club and other ‘irrational’ overseas investments would be tightly monitored making acquisitions in fields other than high-tech manufacturing difficult. This would have an effect on Singapore,” Gorman added, citing Jones Lang LaSalle’s China Outbound Cities Connectivity Index, where Singapore topped the rankings in 2018 as the city that is most connected and impacted by China’s internationalisation.

The JLL report noted that a new wave of Chinese corporates led by technology firms such as Huawei, ZTE, Alibaba and Tencent is making inroads in global markets via acquisitions and venture capital investments. China’s Alibaba Group Holding planned to raise its interest in Singapore-based online retailer Lazada for US$2.0 billion, in a privately negotiated transaction. This pushed China to become the most active acquirer country in Singapore in terms of deal value, clinching 40.7% of Singapore’s inbound activity.

As Singapore’s inbound M&A activity plummeted, outbound M&A activity rose 13.7% to US$17.7 billion in the first nine months from the year-ago period, and was the highest first nine months period since 2014, according to Thomson Reuters. Singapore has had a strong 2018 so far, driven by outbound M&A activity, according to Satbir Walia, partner in the Singapore M&A team at Clifford Chance, led by sovereign wealth funds GIC and Temasek Holdings, who were part of a group of investors that injected about US$14 billion in China’s Ant Financial.

Any Singapore Involvement Announced M&A

Source: Refinitiv

Hong Kong is a very special market and it’s important to Mercedes-Benz.

Together with the team, I wish to continue the success of Mercedes in both Hong Kong and Macau and push for further innovation and new initiatives.

Frederik Gollob Chief Executive Officer, Mercedes-Benz Hong Kong 18

HONG KONG BUSINESS | JANUARY 2019

CEO INTERVIEW

Mercedes-Benz Hong Kong’s CEO Frederik Gollob shares his passion

He sheds light on how he envisions their part in the future of the automotive industry in Hong Kong.

A

resolution touch screen cockpit displays, and a really interactive entertainment system, MBUX. You can talk with the car and the car will ask how it can help you. It learns your style of talking and also speaks Chinese.

s the newly appointed CEO of MercedesBenz Hong Kong, Frederik Gollob shares that delighting customers with Mercedes-Benz products and services is his key focus and passion. He came to Hong Kong this year with his entire family, a dream come true according to the new CEO. “We are still exploring. My daughter loves mini-buses, so every now and then we hop on the minibus. Whenever I can, I choose the Star Ferry to go to Kowloon, for the nostalgia, the smell and frankly also efficiency - and remember I’m a car guy saying this.” In this exclusive interview, Frederik sheds light on how he envisions their part in the future of the automotive industry in Hong Kong. “Hong Kong is a very special market and it’s important for Mercedes-Benz.

Together with the team, I wish to continue the success of Mercedes-Benz in both Hong Kong and Macau and push for further innovation and new initiatives.”

HKB: How has the concept of the Mercedes me Store evolved with the new location in Hong Kong?

I’ve been a fan of the Mercedes me Stores from conception and I’m really happy with the evolution of the concept. When I’m here in the me Store, I like to sit back and be just a customer experiencing our service.

It’s not only about cars, it’s about lifestyle, a Mercedes lifestyle. I believe there is a bit of a counter-move to the global push for things going digital - people are looking for the human element. The Mercedes me Store is a place where the brand can play a role in a different form, it’s where people can naturally gather with something for their senses, combined with our products. Much like the technology in the car, we relax with music, massage, scent and fragrance. When I enter from the busy Queen’s Road Central into this place, I’m calm. The new store is in a fabulously unique building, highly visible from the street.

However, the best experience is not from outside looking in. So, why not come in? As I look around the new Mercedes me Store, I see things you would have at home, a garage, a living room, a dining room. This is the home of Mercedes-Benz in Hong Kong.

HKB: Mercedes has generated excitement with the latest A-Class. What is it about the A-Class that is so right for the Hong Kong and Macau market?

I don’t want to name a target group for the A-Class - if it appeals to you and your lifestyle, then it’s for you. I was driving the new A 200 and what struck me was how our smaller engine gives a super sporty feel. Yet it’s comfortable, the adaptive suspension is great! Moving up to the A 250 we add a significant edge on the performance, it’s a really agile car, fun to drive and it looks great. Our designers did an awesome job particularly on the interior with super high quality materials, high

HKB: Tell us about Mercedes-Benz’ first BAM Festival.

Why did you come up with this initiative?

It’s a great platform to give something back to Hong Kong and get in touch with new friends. We had a lot of fun doing this. When someone makes an impact, it’s “BAM”, like a comic book statement of strength, joy and confidence. Many people were there enjoying the activities, the vehicles which looked fantastic, live music from Khalil Fong, Diana Wang, and Dear Jane. In the end we hope people have a unique brand experience.

HKB: As the new CEO of Mercedes-Benz Hong Kong, do you have a particular style of management?

I am very direct, I do listen, and I do want to be proactive.

I need to be among my colleagues to be a quick decisionmaker with the best available information. For that I need to be close to my colleagues. I also believe it’s important to be a role model, being authentic and relaxed.

We want to be number one in Hong Kong by keeping our customers happy, by making them enthusiastic about our product and our services.

Positioning Mercedes Benz as a brand that people not only respect, but that they love.

HKB: What are your current and future challenges and how will you overcome them?

There is a clear global direction in mobility, HK is not alone. The government are doing well providing more infrastructure and we are very open for a mutual discussion on helping pave the way towards the future.

Environmentally, we encourage electrification, having invested billions of dollars in development. We insist that if it is electric, it must be Mercedes. We plan to launch a fully electric mid-size SUV: EQC, at the end of 2019 as part of our C.A.S.E. strategy: Connected, Autonomous, Shared, & Electric.

HKB: What are the things that we can look forward to from Mercedes-Benz?

There is plenty more to come. We are going to have multiple Mercedes-AMG models launching next year.

Hong Kong is a particularly good market for high performance engines and we can look forward to the most anticipated Mercedes-AMG A-Class coming to Hong Kong soon. On the brand side, we want to reinvent ourselves regularly as an extension of a very strong heritage that we cultivate. We want to be number one in Hong Kong by keeping our customers happy, by making them enthusiastic about our products and our services. In short, positioning Mercedes-Benz as a brand that people not only respect, but that they love.

HONG KONG BUSINESS | JANUARY 2019

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economy watch to a notable deceleration in re-exports originating from China to the US,” he explained. “Exports to China and the US accounted respectively for 79.1% and 12.4% of Hong Kong’s GDP. If China and the US impose tariffs on the rest of [the] goods traded between them, it will hurt Hong Kong’s reexports performance.

The ongoing trade tension between the United States and China has already affected some sectors of Hong Kong’s economy.

HK Economy is treading through troubled waters The first round of tariffs imposed in July and August has affected 15% of Hong Kong’s total exports and led to a notable deceleration in re-exports.

T

he economy has taken a beating over the last few months with the effect of ongoing trade tension between the United States and mainland China as well as the onslaught of Super Typhoon Mangkhut negatively affecting the territory’s economic outlook for the rest of 2018 and 2019.

Research from DBS shows that third quarter growth for Hong Kong’s economy, particularly export figures, was significantly dented by the onslaught of what many considered as the strongest storm to hit the territory in the past three decades. Between August and September this year, exports of goods fell from 13.1% to 4.5%, whilst retail sales plunged from 9.4% to 2.4%. DBS noted that Hong Kong’s real domestic product (GDP) growth will likely remain at 3.3%, with fourth quarter growth further moderating to 2.1%.

“The performance of Hong Kong’s economy has remained resilient in 2018 on the back of solid consumption,” said Alicia GarciaHerrero, Natixis chief economist for Asia and the Pacific, adding however that with Hong Kong’s 20

HONG KONG BUSINESS | JANUARY 2019

Exports to China and the US accounted respectively for 79.1% and 12.4% of Hong Kong’s GDP. If China and the US impose tariffs on the rest of the goods traded between them, it will hurt Hong Kong’s re-exports performance.

economy closely attached to China and the monetary policy linked to the United States, the situation will be increasingly difficult for the territory.

This ongoing trade tension between the United States and China has already affected some sectors of Hong Kong’s economy. Samuel Tse, economist for China and Hong Kong at DBS, explained that this trade friction will only make it difficult for Hong Kong, which heavily rely on its reputation as a major trading hub, to recover any momentum for its export activities.

“The first round of tariffs imposed in July and August has affected 15% of Hong Kong’s total exports and led

Dampened sentiments According to survey findings from CPA Australia, businesses and other stakeholders’ sentiment regarding Hong Kong’s economic outlook for 2019 is understandably subdued as compared to that of 2018. The survey revealed that whilst 62% of respondents expected Hong Kong’s economy to grow by 2% or more in 2018, only about 38% of respondents expect the economy to grow at 2% or more in 2019.

Paul Ho, divisional president 2018 for Greater China at CPA Australia, elaborated some of policy actions to help the Hong Kong government deal with the looming effects of the trade tension. “We suggest that the policy action should include expanding Hong Kong’s trade relations through new free trade agreements and comprehensive double taxation agreements and expanding the Hong Kong government’s global network of economic and trade offices,” he said.

“Given emerging global risks, we are not surprised that respondents have lower growth expectation[s] for Hong Kong’s economy than they did in 2018,” said Ho. “The potential for a trade war, anticipated lower economic growth in mainland China and high property prices are the factors most likely to have a negative impact on the Hong Kong economy in 2019.”

Hong Kong exports to selected countries (YoY)

Source: Bloomberg, Natixis

INDUSTRY INSIGHT: Banking

Are Hong Kong lenders under threat as virtual banks zero in on their market?

The Hong Kong Monetary Authority prepares to grant the first online-only banking licences in Q1 2019.

W

ho will emerge as the first ever batch of Hong Kong virtual banks? All eyes are on the city’s banking sector as its top regulator prepares to grant the first online-only banking licences as early as Q1 2019 as part of its comprehensive digital blueprint for the financial services sector.

After unveiling revised guidelines on the authorisation of such entities in May, the Hong Kong Monetary Authority (HKMA) has received around 30 applications in the first round of screening ending August 31, according to local media reports, as a motley array of fintech, telecommunications operators, retail banks, stored value facility (SVF) licence holders, and Chinese tech giants are gunning to wrestle market share from old-guard banks.

Confirmed applicants for the licence include Standard Chartered Hong Kong, online lending platform

WeLab, a consortium led by CASH Financial Services Group, Zhong An Bank allied with China Citic Bank and HKT, a joint venture by Bank of East Asia, Airwallex, and Sequoia Capital China.

With no need to set up branches, these virtual entities will deliver the full suite of retail banking services which can range from extending loans, operating savings accounts, issuing cards and offering payment services through an app or a website—although they are required to maintain a level of physical presence with which to address customer inquiries and interface with the HKMA. “It’s a big step for Hong Kong because this allows for new market entrants providing pure digital banking, and in a city which has historically experienced relatively traditional financial services. This shift is accelerated by non-traditional

Will virtual banks make the sun set for Hong Kong’s incumbent banks?

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HONG KONG BUSINESS | JANUARY 2019

Virtual banks can offer better pricing and services because they do not have legacy operations and technology costs.

players applying for the licence, leveraging new technology and distribution mechanisms, rather than incumbent banks undergoing digitisation,” said Marc Entwistle, director at the Fintech Association of Hong Kong (FTAHK) and AsiaPacific FinTech Strategy at EY. Taking inspiration from a number of global initiatives, Hong Kong’s dedicated virtual banking push signals its commitment to cement its leadership in the banking scene and capitalise on the growing number of tech-savvy residents embracing mobile for their financial needs.

“Virtual banks can offer better pricing and services because they do not have legacy operations and technology costs. In virtual banks, middle and back office functions are coupled together seamlessly,” said Sankar Krishnan, executive vice president, banking and capital markets, Capgemini.

INDUSTRY INSIGHT: Banking Virtual banks will be subject to the same level of minimum paidup capital requirements of $300m like their retail counterparts. They are also required to invest heavily in cybersecurity and information security frameworks since there is not much in the way of back-up when there are no physical branches to fall back on, noted Entwistle.

The HKMA also requires applicants to produce an exit plan that will enable them to gracefully unwind their business without causing disruption to the financial system in the event that they shut down operations. Entwistle notes that it is likely for this reason that a lot of tech players have been forming joint ventures to pursue a banking licence as they pool their capital, tech and managerial expertise should they graduate from being startups to full-fledged virtual banks.

“At the end of the day, we’re not talking about startups anymore— we’re talking about the banks.

Banks are something that the Hong Kong public have to trust because you’re giving them your payroll.

Sometimes, it’s acceptable for startups to fail but it’s not acceptable for a bank to fail.”

Should banks be afraid?

With fintechs fast encroaching in on their territory, do entrenched banks have reason to fear? A recent report by market research firm J.D. Power revealed that more than half (57%) of Hong Kong customers have expressed readiness to try out virtual banks as they lament growing problems with their existing e-banking platforms with 35% admitting to have encountered a problem with their online banking account and 56% experiencing difficulties with their banking app.

A third (32%) of Hong Kong customers are also considering switching from their main banks, suggesting higher levels of dissatisfaction compared to their peers in Singapore (18%) and Australia (16%) and creating the perfect launch environment for the banking upstarts.

“Virtual banks will likely challenge traditional banks to innovate and

provide more value-added digital platforms to customers as the choices for consumers expand,” said Chua Han Teng, head of Asia country risk at Fitch Solutions Macro Research.

Banking on first-mover advantage, Standard Chartered Hong Kong has decided to throw its hat early on in the race as it sets up a separate entity in support of its virtual banking ambitions. “People do not want another account with a different brand, they want their financial lives simplified. That is why we believe that the launch of a virtual bank will give clients the choice of going completely digital for their everyday banking needs,” Samir Subberwal, regional head, retail banking, Greater China and North Asia, said in a statement.

Other banks are instead choosing to direct their resources to digitising their core services like DBS Bank who was quoted in a local media interview in July that it doesn’t “feel the need to launch a virtual bank” amidst significant headroads on its existing e-banking initiatives.

“DBS Hong K ong might change opinion if SC eats its market quota.

I understand DBS might not need to do so in Singapore since it is one of the large incumbents but, in my opinion, it should follow SC’s strategy,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis.

However, there is no better time for traditional lenders to take advantage of this opportunity especially as they command the lion’s share of the banking market and any new player will still have to first work at chipping away at their dominance in addition to other problems that are unique to their nature as digital entities.

“Aging is a roadblock for virtual banks which is why it is easier for banks with physical presence to launch a parallel strategy based on virtual banking but much harder for those newcomer which do not count on such physical platform,” added Garcia-Herrero.

Despite the massive market potential, a number of banks are still weighing their options as they study the strengths of going the

Standard Chartered Hong Kong is one of the first to apply for a virtual banking licence

Alicia GarciaHerrero

Chua Han Teng

Marc Entwistle

Sankar Krishnan

virtual banking route. “Bank of China (Hong Kong) will proactively drive financial innovation and study the feasibility of virtual banking development, in order to provide customers with diversified banking services,” the bank said in an emailed statement.

Hang Seng Bank echoed the cautious sentiment. “With regard to applying for a virtual bank licence, we are conducting a review based on various considerations, including market conditions, the needs of our customers and whether the development of a virtual bank would complement our existing business.”

Capgemini’s Krishnan, however, believes that it is only a matter of time that banks get onboard the virtual banking train. “In five years’ time, all banks will be virtual banks, as they re-platform themselves by connecting to each other’s platforms, creating a giant utility,” he forecasted.

“Almost all traditional banks are applying for virtual bank licences in Hong Kong, so the stage is being set for a lot of competition that will hopefully benefit consumers.”

On its own, the virtual banking guidelines already represent a massive step forward for Hong Kong’s banking sector. However, the initiative is only one of seven dedicated efforts spearheaded by the HKMA to future-proof the city’s financial services sector for the digital age. Other initiatives that are expected to come online this year include the formulation of a policy framework on open API rules; a Faster Payment System that encourages the use of mobile phone numbers or email address for HKD and renminbi payments; and enhancing the fintech supervisory sandbox.

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cover story

What are the top investment opportunities in the Year of the Pig?

Where to park your money in 2019 It was an undeniably terrible year for equities, but experts are not completely writing them off in 2019. Other opportunities also lie in the oil services sector, U.S. regional banks and attractively priced Japanese companies.

I

nvestment analysts and asset managers began 2018 with a bullish outlook on equities, but most equities have languished during the year, amidst heightened uncertainty and volatility. Experts have not written off equities entirely in 2019, seeing investment pays in China, Europe and the U.S.; but some signaled the need for a broader scan of the market as opportunities ranging from the oil services sector, U.S. regional banks and attractively priced Japanese companies arise. For investors desiring safety, a shift towards defensives and EM bonds could offer some protection amidst signs of weakness amongst tech giants like Facebook, Apple, Amazon, Netflix and Alphabet’s Google (FAANG), rising interest rates and continued global trade tensions.

“Most equity markets have performed poorly in the first 10 months of this year. It wasn’t a great year from most asset classes either. This was due to a host of factors including tighter US monetary policy which contributed to a stronger U.S. dollar and caused a sharp pullback in Asian currencies and asset markets,” said Vasu Menon, vice president and senior investment strategist, wealth management at OCBC Bank.

Menon reckoned investors need to ready themselves for a “very bumpy” ride in 2019, which will require investors to steer away from concentrated bets in sectors or regions.

“It’s best to still diversify across asset classes and regions and also to time-diversify by buying gradually over the 24

HONG KONG BUSINESS | JANUARY 2019

Investors need to ready themselves for a “very bumpy” ride in 2019, which will require investors to steer away from concentrated bets in sectors or regions.

course of 2019 instead of trying to time the markets.”

“Investments ahead in a more divergent policy environment require more active asset allocation,” said Anthony Chan, chief investment strategist Asia at Union Bancaire Privée. “Good investment ideas must incur means for protection amidst continued market volatility arising from growing policy divergent, geopolitical risk and possible ending of globalisation.”

Hong Kong Business rounded up the most promising investment opportunities and listed some life hacks to guide investment decisions based on investor outlooks and conversations with industry experts and observers. The usual caveat applies, here at Hong Kong Business we don’t have a crystal ball and merely gathered ideas from the experts. If we have a crystal ball, we’d give up publishing and just be professional investors. Nevertheless, here are 10 investment ideas to consider at in 2019.

1. Chinese equities, property The valuation for Chinese equities, in particular, is becoming attractive after the pullback in 2018 due to their low valuation, the government stimulus and resilient corporate fundamentals, said Tuan Huynh, managing director, chief investment officer, and head of discretionary portfolio management for Asia Pacific at Deutsche Bank.

Huynh added that China’s high-yield property sector should also draw in investors, on the back of property

cover story firms’ solid profitability and attractive valuation amidst the current cautious investor sentiment. There is also possibility that the Chinese government may slightly loosen property market restrictions in 2019, further boosting the sector’s appeal. China, with its deep valuations, would be a tactical opportunity especially if U.S. and China reach a cease fire on trade war and the latter reflation policy in 2019, said Chan.

2. U.S. equities To better protect against spikes in volatility, which could produce higher losses than investors have been accustomed to in recent years, portfolios should remain invested, but with hedges against short-term drawdowns, according to Liz Young, senior investment strategist at BNY Mellon, suggesting that investors overweight U.S. equities relative to international and emerging markets, or EM, in the first half of 2019. Huynh prefers U.S. equities to eurozone equities in 2019, favoring in particular the healthcare sector, as the latter could be hit by slower growth and political events such as Brexit. However, Chan cautioned that U.S. equities should be avoided on expectations that the technology sector de-rating will start to drag overall performance and the U.S. market will likely peak.

3. U.S. dollar The U.S. dollar staged a surprise rebound in 2018 and is poised to strengthen in 2019 despite some vulnerability to a pullback given the crowded positioning, said Jasslyn Yeo, global market strategist at J.P. Morgan Asset Management.

“Twin deficits’ concern that dragged the U.S. dollar in 2017 had moved to the back seat especially, in the aftermath of U.S. midterm elections; market is now less worried about President Trump’s ability to push out big fiscal stimulus that would significantly widen U.S.’s fiscal shortfall,” said Chan.

Huynh also expects the U.S. dollar to strengthen at the start of 2019 on the back of strong U.S. growth momentum and higher Treasury yields. “However, U.S. dollar strength could be eroded later in 2019 by central bank policy catchup and increasing concerns around the U.S. twin deficits.”

4. EM Asia equities Whilst the tailwinds that buoyed EMs in early 2018 such US Treasuries

Source: UOB Global Economics and Market Research

Vasu Menon

OUTLOOK Anthony Chan

Tuan Huynh

Liz Young

Jasslyn Yeo

Bankers, investment managers weigh in on the outlook for 2019 Vasu Menon, vice president and senior investment strategist, wealth management at OCBC Bank Overall we think that 2019 will be a year where investors will face several headwinds from tighter monetary policy and less support from fiscal policy as Trump’s fiscal stimulus in 2018 wears off. In addition, trade protectionism could remain an issue, China seems headed for a further slowdown and geopolitical developments in Europe could hurt sentiment. So investors need to brace themselves for a very bumpy ride and volatile markets. 2019 will be challenging year and not a year for investors to take concentrated bets in sectors or regions. So even though we are positive on Asia and EM High Yield bonds, we are not suggesting that investors focus only on these asset classes.

It’s best to still diversify across asset classes and regions and also to time-diversify by buying gradually over the course of 2019 instead of trying to time the markets.

Anthony Chan, chief investment strategist Asia at Union Bancaire Privée EM was the worst investment in 2018, and the strong USD will remain a headwind to the sector in 2019, for at least the first half. The recent collapse in oil prices have also caused some rebound in local-currency bond performance, most noticeable of which in Asia is the fall in Indonesia and India local bond yields as well as the IDR appreciation.

However, it will require other headwinds - strong USD to reverse course, UST yields and Fed policy rate to truly peak out – to turn to tailwind for re-entry opportunity in EM assets (on deep valuation of course).

The global backdrop is one that is shifting from prolonged synchronized global growth and policy to desynchronized growth and policy from 2019 onwards.

Eoin Murray, head of investment, Hermes Investment Management 2019, then, is the year for the investment industry to truly pick up the challenge – I firmly believe that social diversity is the last free lunch of diversification – we’ve enjoyed spreading our capital across asset classes, sectors and geographies, and now we must take advantage of diversity, if for no other than good economic reasons. It simply makes commercial (and investment) sense. Our investment focus will change in other ways too and a long-term investment focus will come to the fore.

HONG KONG BUSINESS | JANUARY 2019

25

cover story stems from Brexit negotiations, Italy’s fiscal laxity that put the country on a collision course with the EU, and the region’s high sensitivity to the global economy. “Whilst much of this is reflected in valuations, investors have become increasingly skittish,” said James Rutherford, head of European equities at Hermes Investment Management. Rutherford cited the weaker euro as potentially lending a useful tailwind for the asset class, and reckoned that “given the uncertainty, we think the opportunities will tend to reside among structural growers that have a high degree of earnings visibility,” As investors focus less on technology in 2019, Chan reckoned European stocks may have the chance to play catch up.

Japan

Source: UOB Global Economics and Market Research

as improved economic resilience, rising commodity prices and a benign U.S. dollar have given way to headwinds such as trade disputes, spiralling currencies and declining growth rates, “EMs are broader – and better – than the crisis-stricken economies that have dominated newsflow,” Gary Greenberg, head of emerging markets at Hermes Investment Management. “We believe that many companies will progress despite the changing winds, and that investors can profit from this.”

Huynh shares this more sanguine outlook, foreseeing EM Asia equities, which underperformed in 2018, to likely outperform in 2019, supported in part by an expected stabilisation in U.S. dollar strength and the potential easing of the U.S.-China trade row.

5. EM bonds Investors seeking safe haven have found a surprising shelter: EM bonds. “Their perfect storm has already hit, and the combination of low spreads and rates during the last few years means that bonds very clearly take on an attractive convexity profile when some widening occurs,” said Andrew Jackson, head of fixed income at Hermes Investment Management.

6. Japan Japan has risen in appeal, with the market valuations becoming harder to resist. “In Japan we are also finding stocks with strong fundamentals at attractive prices,” said Geir Lode, head of global equities at Hermes Investment Management, adding that 2019 will be a strong year for investors focusing on a wider range of fundamental characteristics. Chan, meanwhile, said Japan is his favourite market based on valuations.

7. Europe The European market also looks good based on valuations, according to Chan, and “may present tactical entry opportunities especially if the market over-prices geopolitical risk, such as Brexit, Italian budget or even the break up of the eurozone.” Young said that within international, she is constructive on European equities since she projects them close to hitting a bottom and that they will be supported by positive momentum in 2019.

The current pessimism towards European equities 26

HONG KONG BUSINESS | JANUARY 2019

Gary Greenberg

Andrew Jackson

Geir Lode

James Rutherford

Eoin Murray

8. Defensives Amongst sectors, defensives should be preferred over cyclical sectors, and investors should keep an eye out for structural growth plays, said Yeo. “For example, IT software and services companies that are benefiting from the widespread adoption of technology, and biopharmaceutical companies that are benefiting from the rising healthcare spending and an innovative drug pipeline.” Yeo also pointed out the investment potential in so-called “wide moat” companies with a better ability to defend their market share amid rising wages, input costs and interest expense because of their strong pricing power and healthy balance sheets. “As we move into the later stages of the business cycle, investors should be considering a more defensive portfolio tilt for 2019.”

In contrast, cyclical sectors including materials, industrials and financials all underperformed in 2018 and despite the possibility of a tactical rebound, Yeo reckoned it is harder to get excited for these sectors, especially when considering the challenges they will face in the coming year.

9. Industrial commodities Investors could also consider a shift in focus from energy to industrial commodities, where supply lags demand and inventory continues to run low, according to Chan.

“Prices may gap up especially if global growth and China’s domestic demand recovery surprise on the upside.”

10. ESG, diversity and inclusion 2019 will also see investors increasingly focus on environmental, social and corporate governance, or ESG, particularly climate change following warnings from the Intergovernmental Panel on Climate Change report in October, according to Eoin Murray, head of investment at Hermes Investment Management.

Murray also sees further boosts to the cause of diversity and inclusion in the coming year. “2019, then, is the year for the investment industry to truly pick up the challenge,” he said. “We’ve enjoyed spreading our capital across asset classes, sectors and geographies, and now we must take advantage of diversity, if for no other than good economic reasons. It simply makes commercial (and investment) sense.”

legal industry survey

Will international law firms ditch Hong Kong for Singapore or Shanghai?

Restriction on foreign lawyers hits legal industry According to the Law Society’s proposal Hong Kong firms would have to employ two local lawyers for one foreign lawyer, up from a ratio of one to one.

T

otal headcount of Hong Kong’s largest law firms declined 0.89% in 2018 as legal professionals from both foreign and local firms fell from 2,466 in 2017 to 2,444 in 2018, according to Hong Kong Business’ annual law industry survey. Stephenson Harwood suffered the hardest blow with lawyer headcount slashed from 127 to 98. Meanwhile, this year’s list is once again ruled by local player Deacons with 231 legal professionals on board. Rounding up the top five are foreign legal firms that have also managed to secure their places with Linklaters at the second place with 191 legal professionals, Mayer Brown at third place with 186 legal professionals, King & Wood Mallesons with 181 legal professionals, and Clifford Chance with 169 legal professionals.

As of 2018, Hong Kong is a hub for over 10,000 practising solicitors and barristers, making it Asia’s international law capital. The SAR saw over 903 solicitor firms and 83 foreign law firms set up

by H1, including more than half of the Global 100 law firms with 28

HONG KONG BUSINESS | JANUARY 2019

As of 2018, Hong Kong is a hub for over 10,000 practising solicitors and barristers, making it Asia’s international law capital.

a presence in Hong Kong. There are 1,500 registered foreign lawyers from 34 jurisdictions working in Hong Kong, accounting for 15%t of practising lawyers in the competitive legal market. Aside from 906 local firms, there are 85 pure foreign firms completely practising non-Hong Kong law and 30 joint associations between Hong Kong and foreign firms. The practices range from business transactions, litigations, to offshore wealth management. If the numbers are anything to go by, foreign law firms continue to play an important role in Hong Kong’s legal market.

Game-changing rules However, a game-changing rule may hurt Hong Kong’s status as a legal hub. In early October, the Law Society had sent a letter to consulting firms proposing fresh restrictions on lawyers who practice law outside Hong Kong. Under the new guidelines, they would only be able to offer legal advice on cases that involved the jurisdictions they were registered in. Further, Hong Kong law firms would also have to employ two

local lawyers for one foreign lawyer, up from a ratio of one to one.

A number of global law firms, including Linklaters and Kirkland & Ellis, are challenging the proposal, stating that the move could result in “colossal negative repercussions” for Hong Kong. In a previous interview, Martin Rogers, partner at Davis Polk said that the concern lies on the bigger impact of imposing restrictions to the industry. “If the Law Society takes the view that better enforcement is required to restrict what [foreign lawyers] are allowed to do, that’s unobjectionable. What really concerns us is the arbitrary idea to deal with the ratio and to restrict lawyers from coming,” Rogers said.

Meanwhile, should the new rules be rolled out, international firms may choose to move their operations and regional headquarters to other markets such as Singapore and Shanghai, according to Asian Legal Business.

Saving grace Marta Verderosa, manager for Michael Page legal in Hong noted that a silver lining is in the horizon as 2018 witnessed the effects of the introduction of a concessionary tax regime promoting the Hong Kong aircraft leasing industry with a number of openings in both the in-house and private practice space. The fintech industry which is sealing their expansion have paved the way for strong hiring activity amongst regulatory lawyers.

“This is an interesting lead to thinking further about other areas including cashless payment systems, cybersecurity and whitecollar violations,” Verderosa said.

KPMG also notes that due to the strong pipeline for IPOs in place, the growing demand for services related to finance, will also stimulate continual demand for legal services.

“Across the firm, we are seeing increasing demand for legal project managers, but also for our senior lawyers to take the lead on project management,” Clifford Chance regional managing partner Geraint Hughes said.

Legal Industry survey law firm

Foreign/local

2018 RANKINGS

2018 Legal Professionals

2017 RANKINGS

2017 Legal Professionals

Managing Partner

Deacons

Local

1

231*

1

231

LILIAN CHIANG

Linklaters

Foreign

2

191*

2

191

NATALIE HOBBS

Mayer Brown

Foreign

3

186

186

TERENCE TUNG

King & Wood Mallesons

Foreign

4

181

4

177

ZHANG YI & HAYDEN FLINN

Clifford Chance

Foreign

5

169

5

168

GERAINT HUGHES

Baker McKenzie

Foreign

6

166

6

167

MILTON CHENG

Herbert Smith Freehills

Foreign

7

124*

7

124

MAY TAI

DLA Piper Hong Kong

Foreign

8

114*

8

114

SUSHEELA RIVERS

Stephenson Harwood

Foreign

9

98

9

127

VOON KEAT LAI

Norton Rose Fullbright

Foreign

10

95

10

85

PSYCHE TAI

Reed Smith Richards Butler

Foreign

11

92

11

94

Eversheds

Foreign

12

90

12

75

STEPHEN KITTS

Li & Partners

Local

13

87

13

84

ROBIN LI

Woo Kwan Lee & Lo

Local

14.5

83

14.5

84

WILLIAM KWAN

Latham & Watkins

Foreign

14.5

83

14.5

80

JOSEF ATHANAS

Skadden, Arps, Slate, Meagher & Flom

Foreign

16

74

16

52

JONATHAN STONE

Simmons & Simmons

Foreign

17

57

17

54

PAUL LI

Wilkinson & Grist

Local

18

49

18

50

RAYMOND CHAN

HFW

Foreign

19

48

19

48

MARCUS BOWMAN

Tanner De Witt

Local

20

47*

20

47

IAN DE WITT

Robertsons

Local

21

45

21

63

MICHAEL LINTERN-SMITH

Clyde & Co

Foreign

22.5

38

22.5

50

SIMON McCONNELL

Gallant

Local

22.5

38

22.5

38

BRENDA LEE

Cleary Gottlieb Steen & Hamilton (Hong Kong)

Foreign

24

33*

24

33

MICHAEL GERSTENZANG

Jones Day

Foreign

25

25

25

44

JOELLE LAU

TOTAL

Data as of November 2018 *Data retained from last year

30

HONG KONG BUSINESS | JANUARY 2019

2444

2466

DENISE JONG

INSURANCE industry survey

xxxManulife launched an e-claims solution letting customers make a medical insurance claim anytime anywhere

Insurtech, hiring spree shape Hong Kong’s insurance scene The rolll out of the IFRS 17 called for massive hiring of regulatory professionals.

A

rmed with a 30.30% increase in its net premiums as of end 2017 to $125.2b, AIA International stole the crown from Prudential HK Life in Hong Kong Business’ annual Insurance Industry Survey. The former top placer succumbed to a second place finish as its premiums slipped 1.42% YoY to $99.22b as of end 2017.

Rounding up the top five are China Life ($74.31b), HSBC Life ($67.1b), and Manulife International ($50.54b) which have all defended their third, fourth, and fifth spots, respectively. In total, the top 50 insurance firms operating in Hong Kong held on to a whopping $623b worth of net premiums back in 2017, up 1.47% from the $614b worth of net premiums they had back in 2016.

Forging allies One of the key trends that shaped the insurance sector in 2018 that is expected to spill over to 2019 are the alliances forged between insurance companies and tech players. Early this year, insurers such as MetLife, AIA, Allianz, and Zurich announced some of

32

HONG KONG BUSINESS | JANUARY 2019

In total, the top 50 insurance firms operating in Hong Kong held on to a whopping $623b worth of net premiums back in 2017, up 1.47% from the $614b worth of net premiums they had back in 2016.

their insurtech plans after the Hong Kong Insurance Authority rolled out a sandbox for insurers to flexibly partner with tech guys.

Guy Mills, chief executive officer, Manulife Hong Kong said that with insurtech, some products such as health insurance as well as mutual funds can actually be sold online.

Don’t beat them, join them To play the digital game well, insurers in Hong Kong have learned to make insurtechs their allies in coming up with personalised and accessible insurance solutions.

For instance, Manulife launched its ManulifeMOVE programme in Hong Kong, one of the firsts to integrate an innovative healthtracking programme with insurance solution that rewards customers who maintain active lifestyles with discounted premiums. In January 2018, Manulife launched claimsimple.hk, an e-claims solution that lets customers make a medical insurance claim online anytime, anywhere via their mobile device or PC in less than a minute.

Meanwhile, Old Mutual International rolled out Wealth

Interactive, an online platform to keep track of investment performance no matter where consumers are, whenever they need it. Christal said that it is not only an online servicing platform, but a channel for distributors to provide better service to their customers.

“Alongside greater customer access, it allows advisers to leverage technology and tools to manage customers’ portfolios whilst remaining close to them. Wealth Interactive also provides data to support client segmentation, so advisers can ensure a consistent and structured approach to servicing clients,” Christal added.

Insurance of the future In terms of insurance education, MetLife Hong Kong’s MetLife Discovery allows a quick and easy access to information about insurance and the specific terms of insurance coverage that a certain demographic is considering.

Information includes money that consumers should expect to spend and general price indicators for the cost of such a coverage.

Mark Christal, head of region in Northeast Asia, and chief executive officer, Old Mutual International, Hong Kong, said that digitalisation has definitely helped streamline processes and give customers greater access to their finances amidst their increased expectations. He added that this has become a key part of the value proposition that insurance companies and advisers offer their customers, presenting a greater opportunity for them to develop deeper and longer relationships with customers.

Christal said that digitalisation for insurance not only means roboservices, but also complex financial planning for evolving customer demographics. According to him, insurers are seeing more highly mobile individuals with different assets across countries and requiring professional advice on holistic wealth, tax, and legacy planning.

Lee Wood, chief executive

INSurance industry survey flagship Sandbox programme drew several new players into the market and as a result, created a steady level of hiring needs,” the firm noted.

According to Argyll Scott, salary increments of around 15-20% can be expected by those working in the insurance industry considering its amplified activities.

“With IFRS 17’s deadline in 2021, we expect this to continue to be the most talked about subject and the hiring trigger for most insurers in Hong Kong, though it will be a challenge to identify talent, given not too many are familiar with the new regulations,” the firm said.

Guy Mills, chief executive officer, Manulife Hong Kong

officer, MetLife Hong Kongsaid that four changes are likely to further transform the insurance market in the future: digital transformation, the importance of a trusted advisor, increasing health consciousness, and transparency and trustworthiness. According to him, insurance will be enormously different in the future, and data analysis will revolutionise how insurers meet their customers’ changing needs. He added that the ability to mine big data for deep insights has radically altered the dynamics of how one becomes “the trusted advisor”.

Pumping up for IFRS implementation Industry players have also been keen on their preparation for the IFRS 17 implementation by 2021.

“IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features,” PwC Hong Kong said.

Its impending roll out made Hong Kong insurers very busy for the first half of 2018, recruitment firm Argyll Scott said in a report.

“Most insurance organisations focused on hiring regulatory professionals who could help with the IFRS 17 implementation, HKIA

Greater waves from the GBA Apart from Hong Kong’s internal landscape that look positive for insurers, the coming years look bright for the industry with the push for the Greater Bay Area which aims to connect the economic resources of 11 major Chinese cities including Zhuhai, Dongguan, Macau, and Hong Kong. With a total population of 69 million and a collective GDP of about US$1.5t which is comparable to the size of Korea, the Greater Bay is set to open a realm of opportunities for many industries in Hong Kong, including insurers.

The Securities and Futures Commission (SFC) revealed that

by Q3 2018, individual license applications have started to surge by 15% to 2,364. Meanwhile, applications by firms grew by 6% over the same period. SFC-licensed individuals reached 46,063 whilst firms hit 2,844, data from the agency suggested.

“The development of the Greater Bay Area spurs the flow of production factors, consolidates Hong Kong’s advantages in the financial market and supports the growth of real economy in the region, giving a fresh impetus to our insurance sector,” Hong Kong chief executive Carrie Lam said in her 2018 Policy Address back in October 2018.

Lam assured that her leadership will implement various measures such as tax reliefs to promote the development of marine insurance

Salary increments of around 15-20% can be expected by those working in the insurance industry considering its amplified activities.

and underwriting of specialty risks in Hong Kong to seal the SAR’s status as an international insurance hub.

Lam said that the SAR government will push to expand market access for Hong Kong’s insurance sector in the Greater Bay Area. “As a first step, we’ve proposed allowing Hong Kong insurers to set up post-sales service centers in the Bay Area,” Lam explained. “These would serve Mainland policyholders of Hong Kong insurance, as well as Hong Kong policyholders living or working in the Area.” Meanwhile, finance secretary Paul Chan revealed that the China Banking and Insurance Regulatory Commission announced an arrangement that when a Mainland insurer cedes business to a Hong Kong qualified professional reinsurer, the capital requirement of the Mainland insurer will be reduced.

Mark Christal, head of region in Northeast Asia, and chief executive officer, Old Mutual International, Hong Kong

HONG KONG BUSINESS | JANUARY 2019

33

INsurance survey 2018

Insurance Company

Classification

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

AIA International Prudential (HK) Life China Life HSBC Life Manulife (Int'l) BOC LIFE AXA China (Bermuda) FWD Life Hang Seng Insurance Sun Life Hong Kong MassMutual Asia Transamerica Life (Bermuda) Ageas (formerly FTLife) TPLHK MetLife AXA China (HK) BEA Life Hong Kong Life

19

AXA General

20

Chubb Life (formerly Ace Life)

21

Bupa

22

CTPI(HK)

23

Zurich Insurance

Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business General - Direct and Reinsurance Inward Business General - Direct and Reinsurance Inward Business Life or Long Term Business Life or Long Term Business Life or Long Term Business General - Direct and Reinsurance Inward Business TOTAL

24

Generali Worldwide

25

BOC Group Insurance

26

Zurich International

27

AIG Insurance HK

28

QBE HKSI

29

Friends Provident Int'l

30

Generali

31

Chubb Insurance

32 33

Fubon Life Hong Kong AIA (HK)

34

Asia Insurance

35

Blue Cross

36

AIA International

37

Old Mutual International

38

MSIG Insurance

39

Aviva

40

AXA China (HK)

41

Standard Life Asia

42

Allied World

43

Prudential (HK) General

44

CIGNA Worldwide Life

45

AGCS SE

46

Liberty Int'l

47 48 49

Principal AXA Wealth Mgt (HK) Generali "Dah Sing Insurance* "

50

2017 Gross Premium (HK$) $125b $99b $74b $67b $51b $32b $25b $21b $20b $10b $10b $8b $8b $6b $5b $5b $5b $4b

2017 Rankings 2 1 3 4 5 6 8 7 9 10 11 13 12 25 15 16 20 14

2016 Gross Premium (HK$) $97b $101b $93b $67b $35b $32b $25b $28b $18b $17b $10b $7b $9b $2b $5b $5b $4b $6b

$4b

19

$4b

G20 - 2017

$4b

$4b

18

$4b

$3b

21

$3b

$3b

$3b

23

$3b

$3b

$2b

24

$2b

$3b

$2b

22

$3b

$2b

28

$2b

$2b

27

$2b

$2b

29

$2b

$2b $2b

$2b

$2b

31

$2b

$2b

30

$2b

$2b

36

$1b

$2b $2b

$1b

33

$1b

$1b $1b

42 37

$1b $1b

$1b

35

$1b

$1b

$1b

34

$1b

$1b

$1b

45

$900m

$1b

$1b

46

$900m

$1b

39

$1b

$1b

32

$1b

$1b

40

$1b

$1b

$1b

$900m

41

$1b

$900m

43

$1b

$1b $1b

$900m

48

$800m

$900m

44

$900m

$900m

47

$800m

$900m

$900m

49

$800m

$900m

$800m $700m $400m

38 50 17

$1b $700m $4b

$300m

26

$200m**

$300m

$623b

Data obtained from the Hong Kong Insurance Authority Gross premiums that hit billions were rounded off to the nearest billions whilst those that reached hundred millions were rounded off to the nearess hundred millions *(Dah Sing Life and Dah Sing Insurance have been acquired by Tahoe Group) **Figures are from Dah Sing Life’s 2016 statistics

34

HONG KONG BUSINESS | JANUARY 2019

event coverage: Management excellence awards

Hong Kong’s most outstanding companies lauded at the HKB Management Excellence Awards Hong Kong Business successfully recognised outstanding business leaders and firms at the inaugural Hong Kong Business Management Excellence Awards 2018 held at Conrad Hotel Hong Kong on 28 November.

On its inaugural year, the Hong Kong Business Management Excellence Award aims to honour the City’s most outstanding business leaders, including noteworthy individuals and teams whose initiatives have brought tangible business gains for their company’s operations.

This year’s winners were judged by an elite panel that includes Andrew Ross, Managing Director at Baker Tilly Hong Kong Limited; Charbon Lo, Director at Crowe (HK) CPA Limited; Roy Lo, Managing Partner at SHINEWING (HK) CPA Limited; and Anthony Tam, Executive Director in Tax Services at Mazars.

Hong Kong Business congratulates the following winners: Team of the Year Luxury Retail - Chantecaille Beaute Hong Kong Team, Chantecaille Beaute Hong Kong Limited

Alipay Payment Services (HK) Limited Team

Chantecaille Beaute Hong Kong Limited Team

Heilind Asia Pacific (Hong Kong) Limited Team

Manufacturing - Hengan International Group Team, Hengan International Group Company Limited Pharmaceuticals - Pfizer, Pfizer Corporation HK Ltd Technology - AlipayHK Marketing Team, Alipay Payment Services (HK) Limited Innovator of the Year Retail - Moiselle International Holdings Ltd Technology - Prive Services Limited Executive of the Year Advertising Media - Shirley Chan, JCDecaux Transport

Hengan International Group Company Limited Team

Electronics - William Sim, Heilind Asia Pacific (Hong Kong) Limited Luxury Retail - William Shum, Memorigin Watch Company Limited Manufacturing - Li Wai Leung, Hengan International Group Company Limited Advertising Agency - Radhe Vaswani, MullenLowe Profero JCDecaux Transport Team 36

HONG KONG BUSINESS | JANUARY 2019

Memorigin Watch Company Limited Team

MullenLowe Profero Team

Yvonne Leung of Alipay Payment Services (HK) Limited

Pfizer Corporation HK Ltd Team

Martin Li of Hengan International Group Company Limited

Maggie Cheung of Chantecaille Beaute Hong Kong Limited

Kelvin Cheung & Kenny Ma of Pfizer Corporation HK Ltd

William Shum of Memorigin Watch Company Limited

William Sim of Heilind Asia Pacific (Hong Kong) Limited

MullenLowe Profero HONG KONG BUSINESS | JANUARY 2019

37

technology

Alipay Payment Services (HK) limited bags Team of the Year-Technology at the Hong Kong Business Management Excellence Awards 2018 AlipayHK’s innovative grab-and-go model pioneers unmanned retail store in Hong Kong.

A

lipay Payment Services (HK) Limited teamed up with Olympian City mall to introduce Hong Kong’s first unstaffed shopping experience via AlipayHK NEXT Store. Occupying a 4,000 square feet space at Olympian City, the unmanned pop-up boasts a stylish design and comfortable ambience. More importantly, the AlipayHK Next Store utilises radio frequency identification (RFID) and smile recognition technology to provide users a quick and simple shopping journey by automatically scanning selected products. Because of this, AlipayHK won the Team of the Year for Technology at the Hong Kong Business Review Management Excellence Awards 2018.

AlipayHK NEXT Store not only allows customers to check-out their purchases themselves, but also presents an enjoyable technological experience.

Actress Ali Lee graces opening ceremony

38

HONG KONG BUSINESS | JANUARY 2019

company’s operations.

A QR code tunnel represents a good The 2018 nominees were judged photo spot for customers to check-in by a panel consisting of Andrew Ross, on social media, while at the same time Managing Director of Baker Tilly Hong discovering shopping offers of stores Kong; Charbon Lo, in Olympian City that Director of Crowe (HK) are hidden in the The AlipayHK Next CPA Limited; Roy Lo, tunnel. AlipayHK NEXT Store utilises Managing Partner of Store also features SHINEWING (HK) CPA automatic intelligent radio frequency robotic arms to offer identification (RFID) Limited; and Anthony Executive Director free tasting of freshly and smile recognition Tam, in Tax Services of blended coffee. The technology.

Mazars Hong Kong. entertainment factor If you would like to was also amped up join the 2019 awards by local celebrities and be lauded as one of the most hosting singing performances on outstanding management executives Sundays, giving the shocking impaction of Hong Kong, please email marianne@ of vision, taste, and hearing brought by charltonmediamail.com. technology. Aside from bringing cutting edge innovation into the lives of Hong CONTACT Kong residents, the AlipayHK NEXT Store project also brought exponential PR coverage of over HK$100 million.

Company Name: Alipay Payment Services The inaugural Hong Kong Business (HK) Limited Management Excellence Awards was held Address: 26/F, Tower One, Times Square, on November 28, 2018 at the Conrad 1 Matheson Street, Causeway Bay, HK Hong Kong. The award aims to honour Fax Number: +852 3643 0668 the City’s most outstanding business Email: hkmarketing@alipay.com leaders, including noteworthy individuals Website: https://www.alipayhk.com and teams whose initiatives have brought tangible business gains for their

Launch of unmanned shop in Olympian City

R E C O G N I S I N G

HONG KONG’S EXCEPTIONALBUSINESS

LEADERS Nominate outstanding industry leaders and receive your well-deserved accolade.

To nominate, please contact MARIANNE AVILLA at +65 3158 1386 ext. 223 or email marianneavilla@charltonmediamail.com

manufacturing

Growing with you for 33 years, Hengan Group never stops the pursuit of a better life The Group has developed and optimised the products that are most suitable to the market.

O

organisational structure into a flattened n 8 December, 2018, Hengan and streamlined structure, giving its International Group Company sales team sufficient autonomy to fully Limited celebrated the 20th utilise their talents. Leveraging on the anniversary of its listing on the Hong flexibility and market responsiveness of Kong Stock Exchange with hundreds of the “small sales team”, which could build investors and business partners at its up closer relationship with consumers, headquarters in Jinjiang, Fujian Province. the Group has been able to swiftly Established in 1985, the Group has been adjust its supplies, production capacity listed on the Main Board of the Hong and product development, effectively Kong Stock Exchange since 1998. The formulate sales strategies for market in Group has become a Hang Seng Index different districts, and launch products constituent since June 2011 and the first for different consumer groups. In the ten red chips and private enterprises first half of 2018, the Amoeba model listed on China Enterprises Index since successfully reinvigorated the sales 2018. network and the Group’s overall sales “Growing with you for a better life” resumed double-digit growth. In addition, has always been the mission of Hengan the expense ratio continued to drop while Group. Over the years, the Group has the Group increased the spending in developed and optimised the products advertising and promotions. that are most suitable to the market Moreover, to cater to the change in to cater to Chinese consumers’ needs. the consumption pattern and habit of With the acceleration of economic the Chinese consumers, the Group has development in China and the rising pushed ahead with its “Omni-Channel awareness of personal hygiene, Sales” strategy. It has been making consumers have shown a growing use of sales channel preference for like online stores and premium and highThe Amoeba model quality products. To successfully reinvigorated WeChat stores to expand its sales conform to the trend the sales network and further network in China. During of consumption the Group’s overall sales the first half of 2018, premiumisation of resumed double-digit through the strategic personal hygiene collaborations with products, the growth. well-known large-scale Group launched e-commerce operators in China, the various products made by quality Group has started to make use of big overseas raw materials and advanced data to analyse the discrepancy in online technology to cater to the market shopping habit between varied districts, demand for high-quality products. The ages and occupations, so that the Group Group also leveraged on its national and could flexibly allocate the resources international quality certifications to used in production, supplies, and sales. strengthen consumer confidence in its Through the Retail Expert platform, the products, enabling the Group to stand Group also expanded the customer base out from intense competition with highof B2B business, enhanced the logistics quality products. system, and increased the coverage of its To evolve along with the fast-changing offline sales network. For the six months market, the Group has launched three ended 30 June 2018, revenue from management reforms over the past e-commerce exceeded RMB1.2 billion, three decades, with the implementation increased by more than 60% over the of “small team strategy”, also known same period last year. as the Amoeba Model, as the core part In addition to organic growth, the of the latest reform. The nationwide Group has also pursued synergistic implementation of the Amoeba Model acquisitions to gain access to new market in 2017 has transformed the Group’s 40

HONG KONG BUSINESS | JANUARY 2019

Mr Hui Lin Chit, CEO of Hengan Group delivered a speech at the 20th anniversary gala ceremony

and to secure supply of raw materials.

As part of its efforts to diversify its revenue stream outside the PRC, the Group acquired a controlling stake in WangZheng Berhad (Stock code: 7203), a fibre-based products manufacturer listed on the Main Market of Bursa Malaysia Securities Berhad in July 2017.

To secure stable supply of wood pulp in the long term, the Group made an investment in Finnpulp Oy in April 2018.

Finnpulp is engaged in planning and aiming to build a large-scale bio-product mill in Kuopio, Finland.

Looking ahead, the Group will continue to adhere to the corporate spirit of “Integrity, Diligence, Innovation and Dedication”. Leveraging its production scale, brand influences, perseverance in product quality and strength in constant progression, the Group will consider industrial expansion as the long-term development target, continuing to maintain its leading position in China’s personal hygiene product market.

OPINION

tim hamlett

Why are Hong Kong students still going to British universities?

W

hy, people wonder, do so many Hong Kong students elect to go to university in the UK? Is it a colonial hang-over, a misguided nostalgia for London as the mothership? Or is it due to a misguided aversion to the local tertiary facilities?

Not exactly. Part of the reason is cultural. Studying overseas have become a part of what you may call the standard middle class educational package. As a result many Hong Kong kids do it and anyone who refuses an affordable offer will fear that he or she is missing out.

Partly it is anthropological. Young people have always, at a certain age, felt the urge to establish their status as individuals outside the family. This led, in different periods, to desperate expedients like emigration to America, running away to sea, joining a passing circus or taking the Queen’s Shilling.

Nowadays it is reflected in an almost universal feature of university life in developed countries: students do not attend their home town university, however prestigious it may be. Brilliant students who live in Oxford go to Cambridge, and vice versa.

Unfortunately attempts to reproduce this bid for independence in Hong Kong are necessarily unconvincing. Our universities build residence blocks and try hard to create a social milieu called “hall life”. But this is all a bit artificial when the student can easily go home every weekend if she wishes to, and indeed in most cases can conveniently go home every night.

Then there is the matter of economics. Here we must take a brief detour through Hong Kong’s educational history. Soon after 1997 it was decided that Hong Kong universities should switch from three-year degrees to four-year degrees. But the government had no intention of treating everyone to an extra year of education. The extra year at university would simply replace the last year at school.

Accordingly the old school-leaving exam, commonly known as A Levels, was abolished, and replaced by a new thing, called the Diploma of Secondary Education, which was to be taken at the end of the sixth secondary year, instead of the seventh.

A problem then arose. If no students took A Levels then it appeared it would be very difficult for them to secure admission to UK universities, which had traditionally required this qualification.

This was a problem for Hong Kong, but it was also a problem for the UK universities, which make more money out of overseas students than they do from local ones, and value their extensive Hong Kong customer base. The solution, which pleased everybody, was for the English universities to accept that the DSE was entirely equivalent to an English A Level (Scotland has a separate system) despite the fact that the student had spent a whole year less in obtaining it.

But this led to another oddity. English universities were still working what we may

tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism

The cost of university education in Hong Kong can go up to $488,000.

conveniently call the old Hong Kong system, under which students got their degrees after three years of study. And there was no question of them changing it.

So the way this adds up if you are a parent goes like this. if your student studies in Hong Kong then he or she will pay the local fees of HK$42,000. According to one of our local university websites living costs for a student living in hall (rather than at home) will come to about $80,000 a year. So for a degree someone is going to have to cough up $122,000 x 4, which is $488,000 or, in round figures, half a million bucks. If the student goes to England the fees for an overseas visitor start at GBP10,000 a year, They go up to much higher figures for some subjects. Living costs, according to the Times Higher Ed, are GBP9,000 a year. Which means you will pay GBP19,000 but this will be multiplied only by three, which gets us to GBP57,000, or at current rates HK$570,000. So for the rather modest extra outlay of $70,000, plus some air fares, you save a year of your kid’s life and have something you can tell your friends about with pride.

From the point of view of the potential student this is good news for another reason. Having glued an extra year on the front of their courses Hong Kong universities decided that this should be spent on a sort of academic forced shopping labelled “general education”.

The student is required to choose courses from a variety of different places and also subjected to some requirements, usually involving languages.As UK universities only have three years with their students this sort of thing has never caught on there.

For some students this is a shame. Some applicants to university have only the vaguest idea of what they want to do. When I was interviewing people who had applied to Baptist U I could see the list of courses they had applied for and was often stunned by the sheer variety.

Applicants were apparently willing to leave their final choice from a wide range up to the joint efforts of the examiners and the JUPAS computer.

The University of Hong Kong

OPINION

Hemlock

No haven for home-seekers

T

he vermin-ridden, fire-trap subdivided apartment is contemporary Hong Kong’s stereotype media-cliché not-so-hidden dirty secret. Poor families, typically Mainland immigrants, live crammed into 100-square-foot cubicles with poor air, lighting and sanitation – paying rents that total over half their incomes.

Now, Asia’s World City may soon be offering a new dystopian residential hell: the subdivided houseboat, in which middle-class Western expat families are forced to share floating homes surrounded by piles of dogs, baby strollers, 60-inch TVs, tennis rackets and Le Creuset casseroles. That is the nightmare scenario suggested by the latest news from Discovery Bay, where landlord HKRI is evicting yacht-owners from the marina. All other leisure berths in town are full. Angry boatdwellers believe the company is renovating the facility in order to rent it out to billionaires with mega-luxury ocean-going vessels.

It is an interesting story because, unlike penniless Mainland single-mothers, the people concerned are articulate (or assertive/entitled according to taste), possibly have at least some connections, and they symbolize the cosmopolitan image that talent-seeking Hong Kong officials are struggling to maintain.

The eviction sounds like the sort of gentrification any Hong Kong developer would instinctively do. Indeed, HKRI is turning other parts of DB into a Mainland tourism/shopping/property hub-zone. With Mainland money pouring into other districts, the company probably sees the whole area as an under-yielding patch of real estate, clogged up by middle-income foreign managerial types who want an affordable suburb to live in. Foreigners who live in boats are a fringe subset of Hong Kong’s expat population. (Coincidently, someone recently proposed putting container homes on ships as a way to tackle Hong Kong’s housing crisis, prompting memories of a time when much of the city’s population lived on fishing vessels.) Like DB residents in general, cryptocurrency investors, golfers, the remarried and others with questionable life-skills and judgement, they insist they have made a superior choice, while sounding rather defensive about it. They are now finding out how clever it was.

The deal is that for (say) a HK$5-10 million boatpurchase and marina membership, plus monthly fees, you can get a 2,000-sq-ft home. This is a tiny fraction (20% max?) of what such an apartment on land would cost. The gods of Hong Kong property cannot abide such willful defiance or such an extreme aberration of nature, and will take their revenge.

So a HK$150-billion, 55-km, six-lane bridge-tunnel opens. Only a small number of private cars are allowed to use it (subject to nightmarish permit procedures).

Trucks apparently have no use for the new route.

Hongkongers trying buses to Macau report that it’s quicker by ferry; possibly the same goes for everyone’s fave destination, Zhuhai, but who knows? And the main users – bored retired farmers from Zhongshan and environs – must be restricted because Hong Kong doesn’t have the capacity to carry them.

It’s a bridge linking a place where there’s no space for more visitors or traffic to a place no-one wants to go to. Meanwhile, a gleam of sanity bursts through the gloom, as an academic confirms that the sort of tourists coming over the bridge add little or nothing to Hong Kong’s economy. Mass-market tourism is a parasite on a developed city-state with a shortage of space and manpower. A few interests (basically landlords) benefit, but only at the expense of the rest of the population and economy, which suffer lower quality of life and higher rents. Hong Kong would benefit from fewer mainland visitors.

It is clear that Beijing and the tycoons each have their own interests in swamping Hong Kong with outsiders.

It is also clear (recall Sheung Shui) that it is only the threat of activism and visible hostility from Hong Kong people that makes officials pay attention.

Hong Kong policymakers, in their dimwittedness, are left trapped in a logical conundrum: • Tourists are a burdensome pain in the ass, and we need fewer of them • Tourists (mostly) come from the Mainland • Everything from the Mainland is wonderful and must be worshipped • Guangdong steps in, and our officials’ brains stop hurting so much, for the time being.

by hemlock www.biglychee.com Email: hemlock@hellokitty.com

Zhuhai-Macau bridge

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