Twenty-three years on, are we likely to see a similar exodus of wealth from Hong Kong should civil unrest continue?
At the moment, it is difficult to tell. Nonetheless, if we look at recent foreign direct investment flows into the UK during 2020, it looks as though some Hong Kong residents are already looking abroad and considering stable market alternatives.
A stable market alternative
The UK is a popular destination for Hong Kong investors and businesses looking to stable international markets. This is because of their long-established relationships and the range of investment opportunities on offer.
In 2017 for example, it was estimated that Hong Kong companies alone invested more than US$8bn (£6.3bn) into the UK, the majority of which went into Britain’s property sector.
Commercial and residential real estate, particularly prime property, is extremely popular for Hong Kong investors.
This is because of the capital growth it can offer, as well as being based in a stable market fuelled by consistently strong buyer demand. Interestingly, even with the disruption caused by Covid-19, there has been a noticeable increase in Hong Kong investment into UK property in 2020.
Luxury agents Beauchamp Estates sold £300m worth of prime properties to Hong Kong residents in the first six months of 2020. Knight Frank has also revealed that Hong Kong buyers have become the fifth largest foreign investor in central London in August 2020, responsible for 4 per cent of purchases. This is up from 2.5 per cent in August 2016.
Part of the reason why Hong Kong investors are flocking to real estate has to do with the tax incentives the government has introduced to support property investment.
At the moment, non-UK residents (like domestic buyers) can take advantage of a stamp duty land tax holiday, which could result in savings of up to £15,000. With the holiday in place until the end of March 2021, it makes sense for Hong Kong residents to make a pre-emptive decision and direct some of their wealth into UK property to minimise their risk exposure.
Global financial capital
All that being said, we should by no means write off Hong Kong’s position as a global financial centre. Even with a closer alignment to China, the Hang Seng Index has already made a 14 per cent recovery from its March low.
While it is still 9 per cent off its peak value recorded in 2018, the fact there have been heavy capital inflows from China’s mainland institutions demonstrates that Beijing also wants to maintain Hong Kong’s position as a gateway between the West and Asia.
Ultimately, the decision to remain invested in Hong Kong or to diversify to international markets like the UK will be determined by the individual circumstances of investors and wealth managers.
