Is Singapore deserving of the crown of being the financial centre of Asia?
The consensus is that New York remains the financial capital of the western world. While the 2008 Great Financial Crash saw many major US banks totter on the brink of collapse, they have been able to come back with a vengeance. Not so much for Europe, where many Italian and Greek banks still seem to be lurching from crisis to crisis, and more recently Deutsche Bank appears to be undergoing severe financial distress.
Although London is in better shape than it was in 2008, the Brexit referendum may lead to a long term de-rating of the City as a premier financial centre.
And what about the eastern world? Here, Singapore and Hong Kong continue to vie endlessly for top position as the Financial Centre of the region. Until earlier this year, many were beginning to suggest that Singapore was pulling ahead in the battle.
However, a sudden spate of money-laundering and banking scandals has put the nation-state in the spotlight – for all the wrong reasons. Having established over the years a reasonably good reputation for transparency and openness, its business integrity is now somewhat under pressure.
Hong Kong’s financial sector has been around for many decades, and as far as its equities and initial public offerings (IPOs) are concerned, it is streaks ahead of its main East Asian rival.
So far this year there have been more than 70 IPOs listed in Hong Kong, putting it ahead even of New York, and leaving Singapore in the dust.
It is partly because of the more vibrant equity markets, and the highly regarded regulatory system too, that the larger hedge funds tend to congregate in Hong Kong, while the smaller ones (including Japanese operators of hedge funds), set up in Singapore.
The Hong Kong government is hopeful that the launch of Shanghai-Hong Kong Stock Connect, which will permit offshore renminbi to be used for transactions by Hong Kong and foreign investors on the Shanghai market, will further cement its solid position in Asian equity markets.
However, Singapore is well ahead of Hong Kong in global commodities trading. There are now more than 400 commodities traders in the country, generating over US$1 trillion in annual turnover and accounting for around one third of all Asian trade in the physical flow and infrastructure.
And thanks to the extensive network of players along the entire value chain of commodities, ranging from logistics to financing, the Singapore marketplace is highly effective for structuring commodity deals. In addition, Singapore is the largest forex hub in Asia, overtaking Tokyo, and ranking third-largest following London and New York.
In wealth management, Singapore and Hong Kong are virtually neck and neck. Although Hong Kong has the advantage of proximity to the Chinese mainland, Singapore’s location in Southeast Asia is attractive for Indonesian and Malaysian investors, as well as local and foreign investors.
Current market share of around 5% for Singapore and 7% for Hong Kong is estimated. In recent years, the 2 Asian rivals have taken share mainly from the Caribbean and Panama offshore centers, and combined are now larger than them. Switzerland remains the top wealth management center with an estimated 22% market share and USD 2.04 trillion in assets.
So what is the final score? While 12 per cent of Singapore’s gross domestic product comes from financial services, in Hong Kong it accounts for 16 per cent. Does that mean Hong Kong is ahead?
Perhaps for the moment, or at least until Shanghai regains its former key role as a leading Chinese financial and economic hub – last enjoyed in the 1920’s and 1930’s. By that stage, Hong Kong may no longer exist as an independent financial center. In which case Singapore wins!