Singapore won’t displace Hong Kong as a financial center

Hong Kong's rapid isolation from the rest of the world has business executives, investors and expatriates asking whether Singapore will overtake the territory as Asia's main financial center. If that's the ambition, there's a lot of ground to cover. A more realistic outcome is that the two locations work as complements, rather than competitors for global talent.

The situation in Hong Kong is deteriorating. Omicron's spread in recent weeks has upended the government's zero-Covid strategy, forcing it to impose ever more drastic containment measures as the hospital system teeters. The outbreak is now bigger than the surge in Wuhan at the start of the pandemic. Authorities have had to turn to Beijing not only for medical supplies, but also to help meet basic daily needs as produce disappeared from grocery shelves. One official said over the weekend that the government is in "full-on war mode," while Chinese President Xi Jinping appears to be losing patience.

Singapore seems Edenic by comparison. After botching its initial response to omicron, the government has taken the latest outbreak in stride, easing requirements for quarantine and testing frequency even as case numbers soared. Though getting on a plane requires a dizzying amount of paperwork, travel is getting easier. Schools, thankfully, remain open. While official data don't indicate the number of transplants from Hong Kong, anecdotal evidence from moving companies and LinkedIn data show that relocations to Singapore have risen. 

Still, on a number of metrics that would define a financial center, the Southeast Asian city-state remains a laggard. Despite recent efforts to boost local stocks, the market is a graveyard. Average daily turnover in January was just S$1.2 billion ($890 million), compared with Hong Kong's HK$128.6 billion ($16.5 billion) — which itself has been flagging — while the market capitalization of securities listed in the territory is eight times bigger. In 2021, a record year for Asian IPOs, companies raised just $2 billion in Singapore via initial public offerings versus $12.2 billion in Hong Kong. That could help explain why one of the most high-profile Southeast Asian startups — ride-hailing company Grab Holdings Ltd. — opted to list in New York last year. 

Singapore is more competitive when it comes to attracting wealth — not only from China, but also India, Indonesia and Malaysia. Assets under management in the city-state reached S$4.7 trillion ($3.5 trillion) at the end of 2020, compared with HK$34.9 trillion ($4.5 trillion) in Hong Kong. 2  While Singapore has taken steps to close that gap, including a law that makes it easier for family offices, hedge funds and private equity firms to set up shop, the government announced Friday it will start raising taxes on its wealthiest 1%. Hong Kong, meanwhile, isn't standing still, and banks have been aggressively courting mainland money. Several have boosted hiring to cater to wealthy Chinese, who are taking advantage of programs that make it easier to invest across the border. 

In the more whizz-bang corners of finance, such as cryptocurrencies, the rivals are roughly neck-and-neck. Hong Kong has been cautious in its approach, with plans to lay out a regulatory roadmap by July. Singapore, by contrast, assiduously pitched itself as a crypto hub last year, but some high-profile efforts have stalled. In December, the local affiliate of the world's largest crypto exchange, Binance Holdings Ltd., announced it would  wind down operations after pushback from officials, baffling the industry and dashing hopes the city-state would become the company's global headquarters, the location of which hasn't yet been publicly announced. A spokesman from the Monetary Authority of Singapore said that the central bank will adapt crypto rules "commensurate with the risks posed." (Other global regulators have raised concerns about Binance in recent weeks.) 

A critical piece of the puzzle will be the ease of hiring foreign workers. Applying for a visa in Hong Kong is typically a straightforward, anxiety-free process that imposes relatively few demands on employers. Singapore has more stringent rules on recruitment of locals, and the government raised the minimum salary requirements for white-collar employees when it presented its latest budget. The economy is highly reliant on labor from abroad, with non-residents comprising 27% of a population of 5.5 million. 

Singapore itself is deeply divided on the issue, which was the subject of a 10-hour debate in Parliament last year. In response to concerns aired by the opposition party, Manpower Minister Tan See Leng asked, "Do [they] think Singapore will forever be attractive to investors? Is there some magic water that draws global multinationals here? All this happens spontaneously?" The biggest strain on hiring may not be felt by large companies but boutique banks and smaller businesses that endeavor to set up shop with a suite of hand-picked expat employees.

Official announcements of staff relocations to Singapore have been sparse. China is an important market, and any indication of a waning commitment could be politically fraught. So while Citigroup Inc. is moving half a dozen senior equities staff from Hong Kong to Singapore and other markets, the bank is careful to note that it added 93 positions in the territory last year. Quietly, though, more businesses are starting to come up with contingency plans. Hong Kong officials, who once said the city's Covid restrictions wouldn't threaten its status as a financial center, are now worried about the cost of stricter measures. Expats and locals alike also have cited Beijing's tightening grip on the city as reason to leave, pushing residents to emigrate at a record pace. 

Singapore stands to benefit as more businesses straddle both cities, and it's doing a lot of the right things. But the city-state isn't content to merely share its status as a financial capital — it wants to compete. So long as China remains a desirable market for businesses and investors, Hong Kong will be a vital portal. Bankers, for one, want to be close to their clients. As the territory spirals into crisis, though, the ability to live with Covid may start to trump such quaint logistics. 

Rachel Rosenthal is an editor with Bloomberg Opinion. Previously, she was a markets reporter and editor at the Wall Street Journal in Hong Kong.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.