Display to 30 September 2016 HK$40
Issue No. 37
Hong Kong IPO market down but not out Total funds raised dipped by two-thirds, but the market is still the best in the world
Hong Kong’s Best Selling Business Magazine
Regulatory pressures choke Hong Kong’s fintech SMEs Hong Kong’s retail property firms binge on F&B to survive The golden age for Hong Kong banking is over How co-working spaces are changing Hong Kong’s leasing landscape
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HONG KONG
BUSINESS
FROM THE EDITOR
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
Welcome to Hong Kong Business. In this issue, we took a closer look at Hong Kong’s IPO market. In the first six months of 2016, it raised less than half of what it did during the same period last year, but the market has not been ousted from being ranked number one globally. Total funds raised reached HK$43.5 billion and there were a total of 40 new listings in the first half of the year.
Publisher & EDITOR-IN-CHIEF Tim Charlton associate publisher Louis Shek production EDITOR Ephraim Bie Graphic artist Elizabeth Indoy
ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Rochelle Romero rochelle@charltonmediamail.com
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You will also find a report on the state of Hong Kong’s capital markets and how Hong Kong’s stock market felt the heavy weight of the financial and property sectors and Chinese names, hovering around the low level of 20,000 and registering low trading volume. We also discovered that Hong Kong’s economic rebound could prove hollow as consumer confidence remains weak. Economists also say the perfect storm is brewing for the economy, as the slowing global economy is aggravated by a soft demand for the territory’s exports. This issue bears the most recent awards and events we’ve held: the International Business Awards and Business Ranking Awards. We bring you the country’s most outstanding companies and the endeavours they have undertaken to uphold the business industry’s competitiveness and high standards. Take a look at our photo gallery to re-experience the event. Enjoy the issue!
Tim Charlton
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Editorial Enquiries If you have a story idea or just a press release please Email: editorial@hongkongbusiness.hk and our news editor will read it. Media Partnerships Please Email: editorial@hongkongbusiness.hk and put “partnership” on the subject line and it will forward to the right person. Subscriptions Email: subscriptions@charltonmedia.com Hong Kong Business is published by Charlton Media Group. All editorial is copyright and may not be reproduced without consent. Contributions are invited but copies of all work should be kept as Hong Kong Business can accept no responsibility for loss. We will however take the gains. Sold on newstands in Hong Kong, Macau, Singapore, London and New York *If you’re reading the small print you may be missing the big picture
HONG KONG BUSINESS | SEPTEMBER 2016 1
CONTENTS
38
36 ANALYSIS SMEs find crisis of confidence
What’s causing Hong Kong’s Hang Seng Index to dip? 28 ANALYSIS
FIRST 06 Regulatory pressures choke HK’s fintech SMEs
08 HK grabs most competitive economy crown changing Hong Kong’s leasing landscape
RANKINGS
REGULAR 20 Financial Insight:
34 The hard and bumpy road ahead for Hong Kong’s banks
HK IPO Market down but not out
26 Economic Insight: Hong Kong economic bounce back could prove hollow
10 How co-working spaces are
32 Industry Briefing:
12 HK retailers binge on F&B to survive 14 Five large office space developments to look out for in Hong Kong
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 | SEPTEMBER 2016 262 Des Voeux Road Central, Hong Kong
Post event coverage Digital transformation takes center stage at TIBCO NOW 2016
Hong Kong’s golden age of banking is officially over
OPINION 44 Ian Perkin: The brave new
world of low returns
46 Tim Hamlett: We need some new
reasons to visit Hong Kong
48 Hemlock: Overcoming the
challenges of Brexit
For the latest business news from Hong Kong visit the website
www.hongkongbusiness.hk
News from hongkongbusiness.hk Daily news from Hong Kong most read
NEWS
Hong Kong’s GDP expected to pick up in 2Q 2016 Recent data suggests that Hong Kong’s gross domestic product (GDP) should improve in the second quarter after recording an annual growth rate of 0.8% in the first quarter, the lowest in four years. According to a research note from Hang Seng Bank, the annual rate of decline in retail sales volume eased to 8.4% in April-May, an improvement on the 11.2% recorded for the first three months.
News
Rents in retail sector plunge 6.8% in the first half of 2016 According to a research note from CBRE, rents have also seen an aggregate decline of 23% from the peak levels. Rents in Tsim Sha Tsui plunged 10% in 1H 2016, mainly due to more expiries in TST this year than last year.
News
Hong Kong expat pay package hits four-year low Hong Kong has the fourth highest expatriate pay packages in the Asia Pacific region. This is up from last year’s fifth position. However, the total cost of an expatriate pay package has fallen by 2% over twelve months. According to a release from ECA International, the value of a typical expatriate package for Middle Managers in Hong Kong is now HKD 2,070,000 (USD 267,000).
News
Warehouse vacancy inches up to 4.4% in the first half of 2016 In Hong Kong’s industrial market, it has been observed that warehouse vacancy grew to 4.4% from 2.2% as at the end of 2015. This was mainly due to the completion of Mapletree Logistics Hub in March 2016.
News
Investment turnover for commercial properties drops 27% in H1 It has been observed that in Hong Kong’s investment market, the investment turnover for commercial properties declined 27% y-o-y to a total of HK$33 billion in 1H 2016. According to a research note from CBRE, to be specific, this involves deals over US$10 million, excluding pure land sales. Also, the end of the revitalization scheme in April has seen investment demand for industrial properties slowed.
NEWS
Office sector rent edges up 2.3% in the first half of 2016 In Hong Kong’s office sector, it has been noted that overall average rent increased by 2.3% in 1H 2016. Rents also edged down by as much as 0.1% in Q2, the first quarterly decline since the second quarter of 2014.
FIRST development,” he declares. But what is the Hong Kong government doing about this sluggish pace in FinTech investments? Colliers’ Wickramasinghe says it has set up the steering group on financial technologies to look into the promotion of the fintech industry. “Last year, it outlined a plan to establish the first Innovation and Technological Bureau and set up a HK$2b fund to encourage technology and innovation,” he says.
Survey
Life science jobs
Regulatory pressures are boosting the hiring for life science jobs in Hong Kong as drug companies scramble to comply. According to a survey by research firm Hays, competition for candidates in the life sciences industry is set to heat up in the next three months, as hiring managers boost their search for qualified professionals with the relevant technical skills. Additionally, Hays adds that pharmaceutical companies are also adopting flexible recruitment strategies ahead of their new product launches. Dean Stallard of Hays says companies are increasingly cognisant of government healthcare policies and are looking for candidates to help their operations comply with regulations. “In the coming quarter, we will see strong hiring of permanent staff and temporary roles in the life sciences sector,” Stallard says. Urgency to look for talent Hays says it’s also highly expected that more new products will hit the market later this year, prompting employers to look for talent now. “Normally, organisations will start hiring six months before new product launches,” Stallard opines. “Clinical research associates will also see high demand from research organisations as large companies continue to outsource their clinical trials.” Meanwhile, in terms of candidate trends, Hays says an increased number of merger and acquisition activities in the life sciences sector will result in consolidation of headcount for some roles. 6 HONG KONG BUSINESS | SEPTEMBER 2016
Hong Kong lags its global peers in financial technology
Regulatory pressures choke HK’s fintech SMEs
W
hen Chinese peer-to-peer lending platform Jimubox was planning to expand in Hong Kong, it spent nearly a year setting up in the territory. However, all the firm’s efforts resulted to naught as it had to abandon its plan due to stringent rules on account openings made it difficult for the firm to attract potential customers. Jimubox, however, isn’t alone. Strict regulatory requirements have long choked both local and foreign start-ups which aspire to get in on Hong Kong’s burgeoning FinTech landscape, but the territory has failed to capitalise. According to Colliers analyst Yasas Wickramasinghe, Hong Kong currently lags behind in financial technology innovation compared to other global financial hubs, including its perennial rival Singapore. “An analysis of the company office locations of the top 20 fintech companies in the 2015 American Banker Fintech 100 rankings found that only 11 of those companies have offices in Hong Kong,” Wickramasinghe says. In comparison, he says Singapore has 15 offices, while London and New York had 19 offices each. “Hong Kong thus lags behind other major financial hubs in terms of FinTech
Hong Kong currently lags behind in financial technology innovation compared to other global financial hubs, including its perennial rival Singapore.
Challenge for regulators On the other hand, David Daoud, principal consultant for Asia at Maltem Consulting Group, says the challenge for regulators are to strike the right balance between fintech developments and the consumer protection with the objective to enhance the confidence and readiness in using fintech innovations in the financial environment. “To recap the position of the regulators, the financial stability, liquidity and adequate protection of depositors and investors would equally apply for existing and new players,” Daoud says. However, Daoud warns that it’s going to be a long process to mature the conclusion and the implementation of the evolved regulatory and control framework. “The first step is to conduct all the steering groups and consultations, the second step is the fruit of the first one,” Daoud says. “The Hong Kong Monetary Authority announced recently in March 21st 2016 the establishment of the Fintech Facilitation Office (FFO) to facilitate the healthy development of the fintech ecosystem,” he adds.
APAC fintech investment forecast
Source: Accenture, Colliers
FIRST HK unemployment rate by industry
Source: Hong Kong Census and Statistics Department
Chinese companies are ramping up hiring in Hong Kong
Hiring skyrockets as mainland firms go on recruitment sprees
M
ainland businesses looking to increase their global footprint are setting up shop in Hong Kong, and they’re going on hiring sprees. According to Dean Stallard, regional director for Hays in Hong Kong, the influx of mainland firms in the territory has become a new driving force for recruitment, especially in the banking and e-commerce sector. “Hong Kong is the stepping stone for businesses. In Hong Kong, candidates who can help Chinese companies accelerate
the execution of their global expansion plans will be in high demand this quarter,” Stallard says. According to Stallard, there is a growing and urgent need for Chinese banks to secure risk specialists for their operations in Hong Kong, and the trend is set to continue. “Compliance, risk, internal audit and anti-money laundering are also areas where Chinese banks are hungry for qualified candidates,” Stallard enumerates. Meanwhile, a one-year delay of the tax regime governing
The influx of mainland firms in the territory has become a new driving force for recruitment, especially in the banking and e-commerce sector.
China’s cross-border e-commerce businesses is also creating acute demands for talent who have experience, Stallard says. “Cross-border e-commerce, bolstered by soaring demand from Chinese mainland shoppers, will see sizzling growth this year after the government’s decision to postpone the implementation of the tax system,” Dean adds. Hong Kong is also set to play a vital role for Chinese e-commerce platforms to develop their cross-border businesses. Meanwhile, the increasing number of Chinese companies calling the territory home isn’t just spiking recruitment. It’s also causing demands for office spaces to skyrocket, according to Denis Ma, head of research at JLL Hong Kong. Ma says mainland corporates accounted for no less than 40% of net lettings in the Central office market in terms of floor area.
The Chartist: Hong Kong’s property investment market plummetS The expectation gap between buyers and vendors in the commercial real estate investment market has been continuously widening, and this has led to fewer big fish transactions. According to research firm CBRE, total investment turnover has fallen by 52%, and is just 11% of the full year total for 2015, the lowest quarterly total recorded since 2014. Transaction volume has remained at HK$32.7b. Meanwhile, a total of 32 investment grade transactions were also recently registered, and the average deal size is shrinking alarmingly. “In the absence of large deals, most transactions were for assets below the HK$1b mark. 22 of the 32 transactions completed this quarter were under HK$300m,” CBRE says.
Total investment turnover
Source: CBRE Research, Q2 2016
Capital values
Source: CBRE Research, Q2 2016
HONG KONG BUSINESS | SEPTEMBER 2016 7
FIRST
HK grabs most competitive economy crown
survey
Banks’ loyalty perks
A
midst lingering concerns that the territory’s economy is declining and losing its competitive edge against the mainland and its peers, Hong Kong has wrested the title of most competitive economy from the United States, after the former held the distinction for three years. According to the Swiss-based IMD World Competitiveness Center, the territory achieved the top spot because it encouraged innovation through low and simple taxation and imposed no restrictions on capital flows. Arturo Bris, director of Hong Kong’s trade development centre (HKTDC) says Hong Kong’s resilience to the Chinese mainland’s slowdown was the primary cause that helped the territory achieve the top spot this year. “It has been the most resilient to the growth problems and volatility issues in the Chinese mainland this year,” Bris says. “I think that the city’s monetary and fiscal policies, the diversification of the economy, that it is not a manufacturing country and that, in fact, it is a small economy, all play a role in isolating Hong Kong from the crises in Asia.” Meanwhile, while Bris admitted
Hong Kong has been resilient to growth problems
that the United States still boasts the best economic performance in the world, there are many other factors that the Swiss-based think tank took into account. “The “common pattern” among all of the countries in the top 20 is their focus on business-friendly regulation,” he explains. However, according to a report by Hang Seng bank, the city’s GDP growth for 2016 could slow down to 1.3%. “While upcoming economic data for the second half of the year could be volatile and even surprise on the upside due to a low-base effect,” the report noted.
restaurant watch
Could this be the best sandwich place in Hong Kong? Have you ever wanted to create your own tailored breakfast, lunch or dinner by picking and choosing your favourite types of bread, veggies, meat, cheeses and toppings? Fret no more as this is made possible at a newly opened restaurant called Knead. Knead was opened by 30-year old Australian-Japanese Mina Ingram and Dutch Joosje Hardus who bumped into each other in August last year at an event. They lived in Hong Kong for a few years and realized they both missed a good sandwich place. That’s when they decided to set up one for themselves. “I said something about my job and that I ideally would just like to open a sandwich shop, Mina said at that moment that she was writing a business plan for a toastie shop and that we should sit down to chat. 6 months later we opened the doors of Knead,” shared Joosje. 8 HONG KONG BUSINESS | SEPTEMBER 2016
Hong Kong has wrested the title of most competitive economy from the United States, after the former held the distinction for three years.
Banks and financial firms should get their loyalty incentives ready, as 84% of Hong Kong’s affluent middle class uses banking and finance apps to engage with financial service organisations, according to a survey by the Collinson Group. The survey also added that with the spending power of Millennials and Generation Z, loyalty initiatives are becoming a necessity for these firms, or else they risk losing patronage from these digital natives. “This is especially important since banking loyalty programmes specifically were found to encourage 82% of members to spend more, while credit card initiatives positively influenced 79% of respondents globally,” the survey said. Digital payments Additionally, half of Hong Kongers prefer to bank digitally either online or by mobile app, while 43% make digital payments whenever they can. Forty-one percent also believe mobile banking is incredibly important, while 45% use digital wallets such as Apple Pay, Google Wallet, and PayPal. Chris Rogers, director of the Collinson Group, says digital will be the biggest battleground in financial services as digitally native Millennials and Generation Zers become more lucrative target audiences for the sector. “We can expect to see digital engagement continue to soar over the next three to five years. Brands need to act now in order to improve their digital offering,” Rogers says. Rogers adds that digital loyalty initiatives can be far more cost effective than more traditional methods. “By levering data and delivering highly personalised loyalty rewards at the appropriate time, brands can form emotional connections,” he says.
FIRST
How co-working spaces are changing Hong Kong’s leasing landscape
W
hen Standard Chartered Bank wanted to establish a fintech accelerator programme in Hong Kong, it partnered with the co-working space provider TusPark Global Network to conduct its office operations in Kwun Tong. The banking giant, however, is just one among the hundreds of fintech developing firms who are eager to expand using flexible working spaces. According to Yasas Wickramasinghe, an analyst from Colliers, the trend illustrated by the move by Standard Chartered will add to the increasing demand for co-working spaces in Hong Kong. According to Colliers International data, flexible working space operators have secured 252,000 sq. ft. (23,412 sq. m.) of space in Hong Kong over the first five months of 2016 alone, compared to 400,000 square feet (37,160 sq. m.) of traditional office space secured in the territory under new leases in 2015. “The bulk of the demand is likely to be in Hong Kong’s core and fringe CBD, including Central, Admiralty, Wan Chai, Causeway Bay, and Sheung Wan, with some trickledown effect into decentralised locations, particularly from incubator programmes,” Wickramasinghe says. Additionally, he adds companies such as SunGard, CA technologies, and Temenos Group AG
are also predominantly located in Central and Wan Chai, with a smaller presence in decentralised locations such as Island East and Tsim Sha Tsui. “We have found that a considerable number of these companies use serviced office spaces in Central and Causeway Bay,” he adds. But why do these companies prefer coworking spaces and serviced offices over traditional workspaces? Wickramasinghe says the major reasons include reduced capital expenses, flexibility in office size and lease term, networking opportunities, the sense of community created through the agglomeration of similar industries, as well as the prospect of a prime location at a competitive price. Flexible working spaces aren’t inferior Additionally, it isn’t entirely correct to assume that the working environment provided by these flexible working spaces are necessarily inferior to those provided by traditional office spaces. According to a separate report by Colliers, on the contrary, certain flexible working companies pride themselves on only leasing space in prime buildings. “In Hong Kong, for example, Servcorp occupies 22,000 square feet of space in Two IFC, the most prestigious building in the territory,” the report noted.
Occcupation of HK office space by Chinese groups in 2015 and flexible working operators in 2016
Source: Colliers’ estimates
Fintech company offices by office type
Source: Colliers
Meanwhile, Simon Smith, senior director of Savills Asia Pacific, concurs with Wickramasinghe, affirming co-working spaces are emerging as a new demand driver for Hong Kong’s thriving office market. However, Smith says the model is not without its challenges. For instance, he notes that in the traditional business districts, high rents mean that operators are struggling to make a return. “Only in the more remote locations does open planning make sense but the appeal is limited,” he adds.
OFFICE WATCH
Find a cozy spot with Metta’s innovative office
Founders of co-working space Mettā, a versatile space designed as a hub for Hong Kong’s entrepreneurial minds, believe that a bland office isn’t going to cut it anymore in Hong Kong’s business environment. Located at 21F, California Tower in Lan Kwai Fong, Central, Mettā is a members-only club with an annual fee. Its vision is to build an ecosystem of entrepreneurs, investors, and corporations with a shared passion for innovation. While it is not exactly a co-working space, Mettā comprises of an open area with a coffee “Brewbar” by The Coffee Academics, a partitioned quiet zone as well as two smaller conference rooms for more formal meetings. It also includes fast internet, as well as mobile shelving running across the room and dividing it into spaces for different purposes. A movable stage on wheels also provides extra versatility.
10 HONG KONG BUSINESS | SEPTEMBER 2016
Metta’s lounge
Brewbar’s facade
Conference room
Tête-à-tête space
FIRST NUMBERS
hK Property Market Monitor Scorecard
Cafe de Coral
HK retailers binge on F&B to survive
I
f you’ve observed that malls now have 50% more restaurants and food stops than luxury retail stores, then you are not alone. According to a report by Fitch Ratings, Hong Kong property investment firms that are more exposed to the luxury retail segment are strategically adjusting their tenant mix to accommodate more food and beverage (F&B) outlets. For example, Swire Properties Limited has recently announced that the F&B space at its high-end Pacific Place mall will be increased by 50%, which amounts to at least 10 new F&B outlets. However, Fitch added that whether the change in tenant mix will result in lower rental rates for this mall is uncertain, but Swire Properties may benefit from a more stable source of rental revenue. “Retail accounted for about 40% of Swire Properties’ total rental income in 2015, while office accounted for about 55%,” Fitch noted. Meanwhile, property firm Wharf Holdings Ltd. is also another example of a company refining its tenant mix by introducing new brands and new restaurants. With 70% of the firm’s rental income coming from retail, Wharf has also launched promotional 12 HONG KONG BUSINESS | SEPTEMBER 2016
programmes to attract shoppers to its high-end malls, Harbour City and Times Square. CBRE’s Joe Lin concurs with the report, saying the F&B sector is likely to register steady leasing demand in the coming quarters as more overseas operators plan to enter and expand in the market. “Retailers in this category will remain a major contributor to overall leasing demand, not only for traditional retail shops but also for upstairs semi-retail space in commercial buildings,” he says. On the other hand, Hong Kong’s commercial landlords aren’t necessarily losing sleep at night despite the tough retail environment. Fitch says this is because companies will be able to withstand a decline of up to 30% in retail rental income,” Fitch says.
Swire Properties Limited has recently announced that the F&B space at its high-end Pacific Place mall will be increased by 50%.
Declining trend in retail sales
Source: CEIC and UBS calculations Official seasonally adjusted data
Source: JLL
HONG KONG BUSINESS | SEPTEMBER 2016 13
FIRST of a curtain wall system and aluminum cladding, while other parts will be laid with tiles or external paint. The building will also be fitted with a total of six high-speed passenger lifts, three for low-zone offices and three for high-zone offices. Two escalators are also provided within the building to link up the G/F shopping arcade with the first floor shopping arcade. The building will have 20 storeys for offices, one storey on the basement floor for parking, as well as four storeys for the shopping arcade. 38 Southside Situated in the fast developing Wong Chuk Hang district, the brand new Grade A development 38 Southside is set to be a quintessential icon of the area. According to Colliers, the office building will soon be located directly across the similarly soonto-be completed Wong Chuk Hang MTR Station of the South Island Line (East). Additionally, Colliers says the new property will connect commuters directly to Admiralty, Hong Kong’s core transportation hub, in 7 minutes. The building is expected to be completed in the third quarter of 2016, and will add 115,900 square feet of office space to the district, according to CBRE. Colliers says the 28-storey building will feature a typical floor plate size of approximately 7,050 square feet. Additionally, it will also accommodate 67 parking spaces, in addition to its abundant greenery which includes a podium garden. 3
Goldin Financial Global Centre
Five large office developments to look out for in Hong Kong
I
f you’re looking to move your office to a better and greener space in Hong Kong, then you’re in luck. According to CBRE, the increased amount of secondary office space and the upcoming new supply from 2017 onwards in Hong Kong, specifically in Kowloon, will ensure most submarkets in both Kowloon and Hong Kong Island will experience vacancy and rental pressure in 2017. “However, with limited space availability in Central, rents in the CBD will remain relatively resilient, at least for the remainder of 2016,” CBRE says. Here are some of the biggest office developments to look out for in Hong Kong:
Goldin Financial Global Centre One of the largest upcoming office projects in Hong Kong is the new corporate headquarters building of Goldin Financial. Situated in Hong Kong’s bustling Kowloon Bay, the site is at the centre of a new development zone in which the territory’s government will invest more than US$13b. According to Goldin Financial’s website, the Kowloon Bay ‘CBD2’ is designed to offer a raft of new grade-A office space to ease the demand within Hong Kong. “As such, a huge investment in local infrastructure has already been made. No surprise then 1
14 HONG KONG BUSINESS | SEPTEMBER 2016
that a forward thinking corporation such as Goldin will soon take its place among the city’s most innovative, up-and-coming district,” the website says. Goldin Financial Global Centre is slated to be completed in the third quarter of 2016, according to CBRE. “With 27 floors and three levels of basements, it will offer a total of 79,000 square metres of space. The façades of the building are highly articulated with textured curtain walls,” Goldin Financial says. “Glazing is inclined towards the ground on the south side to shade the façade and angled skywards on the north face to allow for increased interior lighting. Cantilevered cubes at the top of the building feature built-in LEDs that form a media wall giving the tower a bold identity that will be visible across Hong Kong.” 1 On Kwan Street Another upcoming office project to look out for is 1 On Kwan Street in Sha Tin. According to CBRE, the office space is expected to be completed in the third quarter of this year. CBRE adds that the office development will add 215,000 square feet of space to Hong Kong’s crowded office market. The building’s facade will be finished primarily with a combination 2
14-30 King Wah Road Another upcoming addition to Hong Kong’s growing office space market is the King Wah Road development located along the waterfront promenade. According to CBRE, the development is expected to be finished in the first quarter of 2017 and will add 257,600 square feet of office space to the North Point district. According to the Hong Kong Green Building Council website, the building will feature a peoplefriendly sustainable design, which will offer a healthy Grade A office space for its users. 4
5 NKIL 6311 (Hong Kong Pacific) Another office development to lookout for is the NKIL 6311 (Hong Kong Pacific) building which is situated at Kowloon East. According to CBRE, the building will add 210,600 square feet of office space to the district, and the development is slated to be completed by the second quarter of 2017.
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CO-PUBLISHED CORPORATE PROFILE
Suncity Group’s great diversification drive
The Suncity Group is developing a formidable portfolio of businesses as it expands into tourism, property, financial services, and entertainment.
Suncity Group’s 2016 annual dinner
I
f Suncity Group has a dream, it would be reputation as the Oriental Las Vegas. that when its name is uttered, it would Diversification push be synonymous to an array of diverse areas spanning tourism, property, financial Alvin Chau, Chief Executive Officer and Director of Suncity Group has noted services and even entertainment. Suncity increasing local income and more tourists Group is looking to make a mark, and beyond the typical gaming crowd that one of their top priorities is in high-end frequent Macau. “Although many people tourism, which led to the formation of have been bearish on the prospects of the Sun Travel. With a flagship Sun Travel brand, the tourism company provides one- the Macau tourism industry, I think this is a rare opportunity of breaking through stop services for customers that want to boundaries, increasing market share and travel the world with ease. expanding global business,” says Chau in a A jetsetter, for example, can contact message on its website. the company to book worldwide concert Suncity Group has been reported to and show tickets, or to reserve seats at featured restaurants. When the destination start investing in tourism industries in neighboring and activity is “Suncity Group is countries like set, the same customer can then looking to make a mark, South Korea and Vietnam due to ask the company And one of their top to arrange luxury priorities is in high-end the slowdown transportation and tourism, which led to in China, which has been a major accommodation. Sun Travel.” driver in the The company declining number of Mainland visitors to further pampers guests by allowing Macau. customised trip itineraries and providing In May, visitor arrivals totalled 2.47 personalised travel advice. million, which while up by 0.3% month-toSuncity Group’s diversification push month was down by 2.8% year-on-year. in tourism and other industries comes It is also more than half a million below as Macau shows signs of outgrowing its
16 HONG KONG BUSINESS | SEPTEMBER 2016
the record high posted in August 2014. Visitors from Mainland China totaled 1.63 million in May 2016, down 3.5% year-on-year. “2015 was a challenging year. We are not only facing downward pressure on the global economy but also facing the Macau gaming unprecedented challenges,” acknowledged Chau, but the group has vowed to improve service quality by attracting and training personnel to help draw in more tourists. Service quality is a critical concern for Suncity Group as it expands into many sectors that require talented and trained staff such as entertainment, property, financial services, food & beverage, automobile, and luxury jewelries. Entertainment Suncity Group is already an established firm, but it is determined to broaden into an entertainment behemoth, especially with the establishment of Sun Entertainment Culture Limited. The relatively young entertainment company, which was formed in 2011, currently produces and distributes TV and film productions, organizes live concerts and creates strategic marketing plans and events.
CO-PUBLISHED CORPORATE PROFILE
Luxury transportation for high-end travellers
Sun Entertainment Culture also represents a growing stable of artists, directors and musical acts. Hoping to ride the Asian pop phenomenon, the company is promoting the girl group quartet As One, which was trained by star choreographer Sunny Wong and is actively promoting in Hong Kong. Property & financial services Suncity Group has pushed into property development through Sun Century Group Limited, an affiliated company that is listed on the Main Board of the Stock Exchange of Hong Kong Limited. Sun Century focuses on the Mainland China market, and has plans to develop more high-end residential and large-scale commercial projects. It has also been reported to be engaged in the leasing of commercial properties in Guangdong, Liaoning and Anhui provinces, as well as hotel consultancy services. The company has also stated that it will focus on providing consultancy, advisory and technical services for large scale resorts and other gaming and entertainment facilities in locations with rapid tourism growth. It is looking to specialize in the building, equipping and fitting-out resorts and other gaming and entertainment facilities, as well as the preparation and organisation of their marketing activities. In the field of financial services, Suncity Group is gaining strides through Sun International Financial Group, which has emerged as one of Hong Kong’s premier companies that provides local and foreign investors with professional wealth creation and investment advice. Suncity Group has been hiring an experienced team that can deliver highvalue and reliable advisory services to its investor clients. Its current range of financial products and services, include the trading of securities, futures, funds, bonds
Group solicits the best quality seasonal ingredients from around the world and holds on the principle of providing premium food, comfortable environment and quality service. Apart from F&B, Suncity Group also has an automobile business with the Sun International Automobile. It is proud to introduce all kinds of luxury cars from around the world, including Ferrari, Maserati and many other exclusive supercars. Sun International Automobile offers automobile sales services, original parts and maintenance services, where car lovers can enjoy a unique speedy and one-stop services including insurance, experience. asset management, and investment Finally, Suncity Group has a portfolio immigration. in luxury jewelries. Sunluxe Collection is For high net worth clients, Sun home to China’s International “Service quality is a largest collection Financial Group critical concern for of luxury brands created the designed by brand Sun Suncity Group as it Private that expands into many sectors renowned artists around the world. offers customthat require talented This collection tailored wealth and trained staff such as currently includes management entertainment, property, the creations solutions. Advisors are and financial services.” of over ten outstanding known to designers and watchmakers from different present impeccable recommendations in countries and regions. Limited edition the areas of asset management, private and one-of-a-kind gifts such as antique client solutions, offshore trusts, pension jewelries, customized wrist watches, and overseas studies. sculptures, and antique clocks are on display in their elegant boutique. F&B, automobile, and luxury jewelries Sunluxe Collection Flagship Store is The group also ventured into the food and located in One Central Plaza in Macau; beverage business with the Sun Food And welcoming all customers, from collectors Beverage Group. It has established a wide and connoisseurs to those who simply variety of restaurant brands including SKY wish to broaden their artistic horizon by 21 (Euro-Continental & Pan-Asian cuisine) discovering their exceptional collection. and Tian Chao (Chaozhou cuisine). The
Sun Entertainment Culture rides the Asian pop phenomenon
HONG KONG BUSINESS | SEPTEMBER 2016 17
startups
Amareos aims to organise and democratise big data
Go Genie makes hiring part-timers easier for employers
Amareos also covers all asset classes across a number of geographies, and has key partnerships with large data companies such as Thomson Reuters and MarketPsych.
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tock market participants are facing an all-too-familiar problem: there is too much information, but very little is of good quality. Realising this dilemma, Philippe El-Asmar and Jerome Favresse, came up with Amareos in 2015, with the goal of providing sentiments rather than a binary positive/negative signal. “We use all sources such as the press, blogs, and social media platforms, and do not limit ourselves to one source like some of our competitors,” El-Asmar says. Amareos also classifies itself as a team of banking veterans who add fundamental research and market understanding to their sentiment analytics.
Broadening data sources According to El-Asmar, its business model is to broaden the availability of the rich data source beyond the confines of hedge funds and high-frequency traders, and in the process, democratising big data. “By combining this dataset with knowledge from several fields – such as linguistics, psychology and AI – Amareos is able to provide the investment community with quantifiable measures of “crowd” sentiment as well as determine which of the eight primary emotions predominate at any given time,” ElAsmar says. “Hence, for the first time in history, investors are able to incorporate psychological factors into their investment process allowing them to overcome an existing serious deficiency,” he adds. Currently, Amareos is self-funded but the team is considering fundraising to finance its technology developments and marketing efforts.
HealthyLovedOnes makes finding caregivers easier
Recruiting caregivers shouldn’t be a tedious task anymore with the startup HealthyLovedOnes, which helps users find the right caregivers for their specific healthcare needs. Founded by corporate sales expert and seniorpreneur Richard Au, HLO says its mission is to provide people with another option for obtaining 18 HONG KONG BUSINESS | SEPTEMBER 2016
good affordable healthcare as well as improving the quality of lives, one person at a time. Au says HLO is a new radical way of solving a big problem of recruiting and training caregivers. “We do long and short term jobs. We have professionals and nonprofessionals. Our business model is open and inclusive; social caregiving should be for everyone,” he adds. Au also says HLO does all the training internally, both online and offline. Au says HLO was self-funded from Day One, after which it secured two angel investors after half a year of operations. Au adds that it currently has US$100,000 in funding. “These are early days, but our company culture is to be creative and open to anything that can bring us good exposure,” Au says.
Temporary employment is growing more popular in Hong Kong, but employers usually go through the tedious and unnecessary task of sifting and screening through resumes for a part-timer. That was before Go Genie was founded. Founded by Mary Cheung, its chief executive officer, and Kelvin Lo, its chief technology officer, Genie is building a community of mobile workers, enabling businesses to hire temporary job-seekers on demand. According to Cheung, the one-minute hiring process eliminates unnecessary guesswork and anxiety through automated prescreening, video interviews, analytical backend vetting and intellectual matching. “Genie’s vision is to create a platform for a global workforce where any business or individual can hire a reliable worker for a job or a task, anywhere, anytime,” Cheung says. Cheung says Genie offers on-demand staffing with only a five-minute matching time. “All job seekers are pre-screened through our profiling system, psychometric tests and in-app analytics,” Cheung assures. In addition, Cheung says employers are able to check the job history and reviews of a candidate and a pre-recorded interview for each candidate done in Cantonese, Mandarin and English in order to help employers make a quick and informed decision. Early struggles Cheung and Lo started the Genie after winning the Hong Kong Social Enterprise Challenge, using the award money sparingly and meticulously. “For the first 6 months, we did not have an office so we worked out of coffee shops 7 days a week,” Lo reveals, detailing the humble beginnings of the startup. Lo says the duo felt it would be important to put themselves in the shoes of job seekers in order to produce the best user experience possible. “We actually put ourselves in their shoes by spending a month as temporary workers, asking around for temp jobs, using Facebook and Whatsapp groups, old fashioned job posting boards such as JobsDB, indeed, as well as newspaper and agencies,” Lo says. “From not being paid after a job is done, to employers asking you to overtime without pay, to spending an entire day traveling around Hong Kong interviewing and then not getting the job, we have experienced it all.”
co-published Corporate profile
Investments in Uzbekistan: Favourable conditions and unlimited opportunities
Find out what makes Uzbekistan an ideal country for foreign investments. addition, by investing in Uzbekistan foreign companies gain the opportunity to access the rapidly growing market of Central and Eastern Europe, Southeast Asia, and the Middle East. To this end, in 2015 investments from all financing sources in the equivalent of $15.8 billion were drawn and utilized, indicating an increase by 9.5% against 2014. With more than $3.3 billion, or over 21% of all investments are foreign investments, of which 73% are foreign direct investments. 67.1% of all investments are channeled at industrial construction. This allowed in 2015 to complete the construction and to put into operation of 158 large production facilities with a total value of $7.4 billion. Among facilities put into operation one can mention Ustyurt Gas Chemical Complex at Surgil deposit which had been built jointly balance in foreign trade, which allowed for zbekistan has been recognized as the with South Korean investors and experts. This growth of state reserves. heart of the Great Silk Road which has complex is worth more than $4 billion and it is Despite a generally subdued performance existed for more than 16 centuries. one of the most modern high-tech and large in the developing Europe and Central Asia The territory of the state lies at the center industries in the world. Its commissioning (ECA) region, Uzbekistan continues to grow of the land bridge between East and West will allow to receive annually 83000 tons of strongly. In 2015, real GDP expanded by Road, and has played a prominent role in international overland trade. Beginning in the 8%, supported by a large fiscal stimulus that polypropylene, which had previously been imported, to increase polyethylene production was prompted by the worsening external late 20th century, Uzbekistan embarked on environment. Uzbekistan’s growth rate makes by 3.1 times. market reforms that have gradually restored it one of the fastest-growing economies in and magnified its position as a key player Progressive legislation the ECA region. in international business. The Uzbekistan According to economic experts, the economy ranks as one of the most stable and investment legislation of the Republic of Best business environment fastest growing in the world today. Uzbekistan is among the most progressive As mentioned in the World Bank’s report, The prestigious World Economic Forum legislations in the CIS countries. The Uzbekistan is currently among the top ten has ranked Uzbekistan among the top five countries with the fastest growing economies countries in the world, which in the last year law related to the protection of foreign investments, guarantees and rights is among in the world on the basis of its development in achieved the best results in improving the the most important laws of the Republic 2014-2015 and growth projections for 2016- business environment. of Uzbekistan. The law reflects basic key The modern Uzbekistan economy offers 2017. A modern governance structure has provisions of international investment law, foreign investors a number of advantages. been introduced to all joint-stock companies. A set of laws and regulations has been adopted Among them are political and macroeconomic in particular those provisions guaranteeing the rights of foreign investors and providing stability; favorable climatic conditions; to strengthen guarantees for and protect preferences for them. rich raw materials; strategic geographical the legitimate rights of private owners and Further, the Republic of Uzbekistan location in the center of the largest regional entrepreneurs, and to simplify and facilitate has signed 70 bilateral agreements on markets; an integrated network of ground the establishment and implementation of mutual encouragement and protection of and air communications, transport, and entrepreneurial activities through one-stop centres that deliver public services based on the logistics systems of international importance; investments, as well as ratified a number of related multilateral international instruments. a diversified industrial base; and superior “one-stop shop” principle. These regulations govern the stimulation and scientific-intellectual, human resources. The Despite the ongoing global financial and protection of investments, compensation investment attractiveness of Uzbekistan economic crisis, last year the GDP grew by industrial sectors is generated by the relatively for investment losses caused by free transfer 8%, industrial output – by 8%, agricultural of investments abroad, and the procedure low cost of production factors (electricity, production – by almost 7%, construction for settlement of investment disputes. Of natural gas, labor), a significant domestic and installation works – almost by 18%. The particular note is the system operating in market (more than 31 million population), annual budget is executed with a surplus of 0.1% of GDP. The inflation rate was at 5.6%, and free of duty access to the markets of CIS the country providing privileges for foreign investors making direct investments. countries (more than 280 million people). In that is, within the forecasted parameters. In spite of the significant slowdown in the world “Uzbekistan is currently among the top 10 countries trade and reduction of external demand, world in the world, which in the last year achieved the prices decline for major export commodities, Uzbekistan has managed to achieve a positive best results in improving the business environment.”
U
HONG KONG BUSINESS | SEPTEMBER 2016 19
FINANCIAL INSIGHT: IPO
IPO #1: Bank of Tianjin produced $946m in its IPO on the main board of the Hong Kong Stock Exchange (Photo: Wen Yuanhua, president of Bank of Tianjin)
IPO #2: BOC Aviation raised $1.1b in its Hong Kong initial public offering (Photo: Robert Martin, managing director and chief executive officer of BOC Aviation Ltd.)
IPO #3: Zheshang Bank launched one of the largest IPOs of the year, a $1.69b initial public offering in 2016. (Photo: Liu Xiaochun, president of Zheshang Bank)
HK IPO market is down but not out
Six months into 2016, the Hong Kong IPO market has raised less than half of what it did during the same period last year, but it still did better than it’s global rivals New York and London.
E
ven as the Hong Kong IPO market showed weakness in the first half of the year with total funds raised dipping by around two-thirds, its rivals like New York and London are bleeding as well, enabling the former to cling on to the top spot of the global rankings. Analysts expect a listing surge in the second half of the year, with the market largely brushing off Brexit, and going into overdrive on the back of mainland Chinese and other Asian firms lining up to raise funds. Limping leader Global economic uncertainty has dampened fundraising through IPOs worldwide, even in Hong Kong, although the territory has not been ousted from its throne. The volume of IPOs and funds raised in Hong Kong ensured it has continued to rank number one globally in the first half of 2016,” says Eddie Wong, partner of capital markets services at PwC Hong Kong. In the first half of this year, there were a total of 40 new listings in Hong Kong, a 22% decrease compared to the same period last year. Total funds raised reached HK$43.5 billion, a 66% decline year on year. Eddie Wong attributes the decline to global economic uncertainty as well as volatility in China’s stock market earlier this year, which prompted investors and companies planning to list in Hong Kong to adopt a wait-and-see attitude. But comparing Hong Kong to the rest of the world, 20 HONG KONG BUSINESS | SEPTEMBER 2016
In the first half of this year, there were a total of 40 new listings in Hong Kong, a 22% decrease compared to the same period last year.
the territory continues to hold a firm a leading position in global capital markets. IPO activities in Hong Kong showed a relatively stellar performance than second-place London Stock Exchange (total funds raised HK$31.6 billion) and third-place New York Stock Exchange (HK$28.8 billion). Other IPO markets buckled under the pressure of slowing economic growth in China and weak economic recovery globally, plus the added uncertainty from the UK referendum to exit the EU and the pace of US interest rate hikes. The Hong Kong IPO market has coped better than others, with a stream of financial services raising most of the proceeds, seemingly unperturbed by the souring macroeconomic environment. IPOs of financial services companies made up 84% of total funds raised on the Main Board. “This reflects the fact that many mainland banks and financial institutions continued to actively pursue optimal timing to list in Hong Kong in order to raise capital and meet future development needs,” says Eddie Wong. “Although there were some market fluctuations in Hong Kong in the first quarter, it improved in the second quarter. In the first half of 2016, most IPOs on the Main Board were financial services companies, followed by retail, consumer goods and services, as well as industrial products,” he adds. Looking forward to the second half of 2016, there is
FINANCIAL INSIGHT: ipo wide expectation that Hong Kong will pull ahead even more as the IPO market leader, again led by listings by financial services firms. “We expect listings in Hong Kong for 2016 to continue their focus on financial services, with the chance of seeing a mega-IPO raising over HK$50 billion,” says Eddie Wong. Second half surge Edward Au, co-leader of the national public offering group at Deloitte China, shares this optimism, anticipating more buoyancy in IPO activity in Hong Kong especially in the fourth quarter, the traditional peak season for IPO listings. He reckons a large pipeline of IPOs and a favourable listing environment should improve Hong Kong’s hope for IPO leadership position for another year. Au believes Hong Kong still possesses strong advantages for Chinese companies, and foresees that Chinese companies will continue to flow to Hong Kong for fundraising activities in their urge to scale up and go global. It also helps Hong Kong that there is a large backlog of nearly 800 IPO applicants on the Chinese mainland as well as an ongoing priority of stabilising the A-share market. With tighter IPO approvals being the status quo, this suggests that there is a slimmer chance of introducing the registration-based regime this year, that was anticipated to help bring a more efficient IPO approval process for the Mainland, according to Au. Another positive development for Hong Kong is the plan of transforming the environmental conservation industry into a Chinese pillar sector, which should encourage more companies in that sector to seek funds in Hong Kong. Au reckons healthcare and pharmaceutical companies will likewise look for IPO opportunities in Hong Kong on the back of the ongoing China medical sector reform. With Hong Kong providing a more appealing IPO environment, mainland capital markets have been floundering due to stricter listing policies and greater uncertainty, says Benson Wong, assurance partner, PwC Hong Kong. The volume of A-share IPOs and funds raised in mainland markets in the first half of 2016 dropped significantly compared to the same period last year. There were a total of 61 new listings and total funds raised reached RMB28.8 billion, declining 67% and 80% respectively year on year. “These reflect the policy Average deal size of new listings (Jun-July) Excluding IPO candidates that raised funds of more than HK$10billion
Source: PWC
Number of newly listed companies
Source: PWC
It also helps Hong Kong that there is a large backlog of nearly 800 IPO applicants on the Chinese mainland as well as an ongoing priority of stabilising the A-share market.
uncertainties in the mainland capital markets which caused volatility in the A-share market during the first half of this year. Coupled with stricter reviewing of listing proposals and terms by regulatory authorities, the rate of IPO launches in mainland markets has been slowing down,” says Benson Wong. Given the increasingly complementary trading platforms in China and Hong Kong, Chinese companies are expected to remain keen to list in Hong Kong, says Eddie Wong. “In particular, domestic enterprises with developed, mature businesses hoping to reach more overseas investors may list in Hong Kong as red chips or H-shares. Also, due to the considerable listing queue in the mainland, we believe that some of these companies may choose Hong Kong as a listing destination where timelines can be more easily managed. This will sustain the trend for Chinese enterprises listing in Hong Kong,” he adds. A well-rounded market Hong Kong is not only popular among Chinese mainland firms, but also across the Asian region as a well-rounded market for IPO fundraising. “The Hong Kong market continues to be one of the hot listing venues for SMEs in southeast Asia as well, especially those run by overseas Chinese or with a China business strategy,” says Au. “It is still relatively balanced in terms of market liquidity, valuation and pre- and post-listing fundraising capability. Local small and medium-sized enterprises are still eager to get listed in Hong Kong which is evident in the surge in listing applications,” he adds. “With a clearer market outlook providing a more stable listing window, seven to eight listings are likely to commence their offering plans. Most of these firms will require funds to expand cross-border brokerage and securities businesses in order to sharpen their competitiveness.” In light of its very positive standing as an IPO market, Deloitte forecasts Hong Kong to have about 115 IPOs raising approximately HK$200 billion for the full year of 2016. The Hong Kong IPO market will not suffer significantly HONG KONG BUSINESS | SEPTEMBER 2016 21
FINANCIAL INSIGHT: IPO in the second half of the year as a result of the Brexit vote, according to Benson Wong. He explains that while the UK’s decision to exit the EU may increase volatility in the global economy and cause investors to become more risk-averse, Hong Kong IPO activity has relied on mainland enterprises in the past few years, which means the impact of external factors is relatively mild compared to other international stock exchanges. “We foresee that there will be little change in the number of businesses interested in going public in Hong Kong, but uncertainties in the global economy may continue to affect the possibility, pricing and performance of upcoming IPO launches,” says Benson Wong. “Due to the impacts of Brexit, we believe there is much less chance of a US rate hike this year, and it will have limited impact on the Hong Kong IPO market,” he adds.
Capital raised was also down, to US$10.5 billion from US$40.7 billion in the first half of 2015.
Greater China gears up Evaluating the IPO market outlook in Greater China, the second half of the year is shaping up to be a stronger one with a robust IPO pipeline in both mainland China and Hong Kong, says Terence Ho, greater China IPO leader at EY. Greater China will likely bounce back from its slow first half performance during which the number of deals was 101 IPOs, down from 236 IPOs from the same period last year. Capital raised was also down, to US$10.5 billion from US$40.7 billion in the first half of 2015. Optimism comes from the fact that the Hong Kong Main Board and GEM and the Shenzhen Stock Exchange were the two most active stock exchanges globally in second quarter of the 2016 year to date by number of deals, while the Hong Kong Main Board led globally by capital raised and saw three of the top ten largest IPOs globally during that period. Ho notes that industrials, technology and consumer products were the most active sectors, driven by a number of IPOs of smaller companies that mainly listed on the junior market GEM. But in terms of funds raised, financials led other industries. Mainland China banks were especially eager to get listed to access the capital needed to fuel their growth plans. “Often, the route to an A-share IPO takes a relatively longer time, leading many mainland city banks to look at Hong Kong instead. Two of the three largest deals in Asia in the first half of 2016 are examples of this sector,” says Ho. 2016 and 2015 Fully diluted P/E multiple of new Listings (Jan-Jun)
Source: PwC
22 HONG KONG BUSINESS | SEPTEMBER 2016
singapore view
Singapore gets big lift from REITs Just when Singapore’s shaky initial public offering (IPO) market is about to be at wits’ end, big-ticket REIT IPOs came pouring in. IPOs on SGX plunged 57% from the 2014 to 2015 period as only 13 IPOs were listed, totalling to just about $630m. Now, 6 months after a depressing period for the SGX, 8 IPOs were already listed compared to just 3 in 1H15. It has also raised $1.6b proceeds, almost 29 times more than 1H15’s $56m. And it could only get better. Deloitte noted in its half-year IPO market report that in the past four years, the number of IPOs in the second half far exceed that of the first half, sometimes more than doubling. Big-ticket IPOs The Singapore IPO market stirred from its 2015 slump when two big-ticket IPOs launched in the first half of 2016, namely Frasers Logistics & Industrial Trust and Manulife US Real Estate Investment Trust. Both IPOs attracted strong investor demand and priced at the top end of the price range, and can be credited for reviving the Singapore IPO market, says Elaine Tan, senior analyst, deals intelligence at Thomson Reuters. In May, Manulife listed its US property assets and raised US$493.2 million, and was the first mainboard listing of the year. It was also a triumph for the company as it was its second listing attempt after pulling the plug on an IPO last year due to volatile market conditions. Then a month later, Frasers Logistics and Industrial Trust, composed of Australian industrial assets, raised US$932.6 million, and was the biggest IPO in Singapore since Asian Pay Television Trust’s US$1.1 billion IPO in 2013. “IPO activity in Singapore stock exchanges showed signs of life after a lackluster year in 2015,” says Tan. The two listings underpinned Singapore’s reputation as a hub for real estate investment trust (REIT) and business trust listings in Asia.” She reckons the diversity offered by Singapore REITs amid heightened economic and geopolitical concerns have made them attractive to issuers. They are also viewed by investors as a safe haven or relatively defensive sector in volatile markets. Led by the Frasers and Manulife IPOs, offerings totaled US$1.4 billion in the first half of 2016, a 65.2% increase.
Singapore equity capital markets
Source: PwC
co-published Corporate profile
Bose’s new headphones let you tune out the noise and tune into the music
The new QuietComfort 35 make distractions such as background noise and wires a thing of the past.
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t’s perfectly fine to detach yourself with a cup of coffee and some music from your headphones to kick back and relax at the end–or even at the middle–of a tiring week. But distractions sometimes get in the way, including irritating background noise or wires from your headphones that force you into an uncomfortable position. With Bose’s new QuietComfort 35 around-ear headphones, these distractions are now a thing of the past. Bose has always been at the forefront of innovation when it comes to the audio industry, and they are set to revolutionise it once again. With Bose’s QC35, the limitations of existing wireless noise cancelling headphones are effectively shattered, giving the user an entirely new experience for traveling, commuting, creating, studying, or just plain old relaxing. The QC35 lets the user tune out completely with the same remarkable silence of Bose’s famous wired QuietComfort headphones. Bose’s QuietComfort headphones Bose’s QuietComfort 35 has microphones inside and outside the earcups, which enables it to sense, measure, and send unwanted sounds to two proprietary digital electronic chips, one for each ear. These chips respond with a precise, equal, and opposite signal in less than a fraction of a millisecond. The resulting effect is a marvel which is exclusive only to Bose. Background sounds, such as the rumble of a subway car, plane engine, or the commotion from rush hour get hushed into a comfortable silence. The QC35 also has up to 20 hours of battery life from its rechargeable lithium-ion
battery, so customers can count on it to last longer than a flight from New York to Hong Kong. The QC35 is currently available in Hong Kong for HK$2888. All of Bose’s new wireless headphones include NFC for touch-to-pair convenience, super-intuitive controls for music and calls, voice prompts for key information including setup, caller ID and battery life, and the free Bose Connect app for even more functionality. While the QC35 is packed with proprietary technology for performance, the finer details of materials, build and finish are equally precise. They’re refined yet rugged, lightweight yet stable, with legendary Bose comfort. A premium on comfort While traditional headphones may irritate the ear with prolonged usage, Bose’s QC35 puts a premium on comfort and can be used for long stretches of time. The material is essential for Bose’s headphones. Its headband is not only soft, but it’s regarded as a luxury. The headphones use Alcantara® suede, an international brand used for luxurious purposes such as sailing and advanced limousines. This material allows the headphones to be used all day long. Ear cushions are made of a synthetic protein leather, and silicon containing microspheres which generate a passive noise cancellation effect. Bose also chose to use glass fiber-filled nylon, a lightweight and durable material, and
The QuietComfort 35 give up the use of plastic. Meanwhile, the headband is made of stainless steel spring, ensuring that the headset can withstand the stresses of daily use. Mobile app connectivity The QuietComfort 35 is also compatible with the free Bose Connect app, which gives Bose wireless headphones unparalleled functionality. With the clean and minimal interface of the mobile application on the first use, it’s familiar for users on the first use. Owners can easily connect and switch between Bluetooth devices, update software, personalize their voice prompt language and more. The Bose QuietComfort 35 headphones are available in luxurious colors of black and silver. All new headphones will be sold through Bose stores and select authorized dealers. The Bose Connect app, meanwhile, can be downloaded from the Apple App Store and Google Play Store. “Until now, great wireless noise cancellation and better wireless workouts have been more of a dream than reality,” says Bernice Cramer, general manager of Bose Wireless Headphones. “Like the QuietComfort headphones before them, the performance of the QC35 is way ahead of where the market is right now.” With Bose constantly on the forefront of innovation, the QuietComfort 35 is likely just the latest of more innovations that the company will bring to its valued users.
“With Bose’s QC35, the limitations of wireless noise cancelling headphones are effectively shattered.” HONG KONG BUSINESS | SEPTEMBER 2016 23
MOTORING REPORT
the most intelligent saloon:
Mercedes-Benz E-Class
The all-new Mercedes-Benz E-Class is a technological tour de force in the automotive world that promises unsurpassed experience for both the driver and passenger.
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ercedes-Benz has rolled out the new E-Class, its tenth-generation business sedan, but for some drivers it may feel like the first as this latest evolution leapfrogs previous iterations in comfort, safety, sleekness and smart driving capabilities. The new E-Class marks the world premiere of numerous technical innovations, including touchsensitive control buttons on the steering wheel, energy-saving LED interior lighting, efficiency-boosting 9G-TRONIC ninespeed automatic transmission and safety-enhancing driver assistance systems. Taken as a whole, the innovations make the E-Class the most intelligent sedan in the business class. Not only do they enable comfortable, safe driving on a new level, they also offer heightened driver control of infotainment systems without compromising safety. From the exterior, the E-Class boasts a captivating silhouette with its elongated bonnet, coupe-esque roof, broadshouldered tail and longer wheelbase. Then, easing into the driver seat, one notices its sophisticated, confidently stylish and sporty vibe with interiors meticulously constructed from high-quality materials ranging from open-pore woods to leather-covered doors. The elegant craftsmanship extends further to the new available color combinations such as nut brown/macchiato and saddle brown/macchiato. More than the visual splendour that greets drivers, the new E-Class grants unprecedented driving control through the
24 HONG KONG BUSINESS | SEPTEMBER 2016
strategic placement of touch-sensitive buttons on the steering wheel. The buttons are highly responsive and seem to have taken inspiration from smartphone screens, even recognising horizontal and vertical swipe gestures. This enables the driver to conveniently access and control the entire infotainment system with simple finger movements instead of having to take one’s hands off the steering wheel, thereby ensuring greater safety as they keep their hands on the wheel and their eyes on the road. The multifunction telephony also lets drivers charge and connect mobile phones to the vehicle’s exterior aerial without any cables or a telephone holder. The wireless, inductive charging system supports most mobile devices and even takes advantage of the latest near field communications technology to allow for hands-free charging and calling. The new E-Class is especially suitable for long-driving trips with its ergonomic, sculptural seats. The centre armrest has a stowage box and can cradle drinks with its two pop-out holders, and there is an option for a three-piece backrest with a 40% - 20% - 40% split, making the car exceptionally versatile.
“The E-Class design concept has an emphasis on intelligent assistance and aerodynamism.”
MOTORING REPORT Traveling and driving comfort are further enhanced through the addition of a new 9G-TRONIC nine-speed automatic transmission, which enables fast gear changes and allows low engine revs. One quickly notices the pleasant reduction of noise and boost in efficiency. But for even greater stability despite faster speeds and heavier vehicle loads, the new E-Class has the option to equip with a multi-chamber air suspension, the only car in the segment to be able to do so. Through the AIR BODY CONTROL multi-chamber air suspension that provides all-round self-levelling and better handling stability, occupants continue to enjoy a smooth ride even as the driving speed accelerates and the vehicle load increases. The highly advanced and adaptive suspension system also allows the E-Class to traverse consistently well on a variety of surfaces, including rough roads or access roads. Fuel consumption is even cut down because of the suspension’s superior control that allows it to reduce the ride height when appropriate. For drivers that put a premium on safety, the Mercedes-Benz’s new E-Class is built to impress. Highly intelligent and intuitive driver assistance and hazard warning systems enhance safety and comfort to new levels. A highlighted feature is the Active Brake Assist which warns the driver of impending collision situations, detects pedestrians nearing the danger zone ahead of the vehicle, and provides support during emergency braking, or automatic application of brakes, if necessary. Mercedes-Benz also recognises how drivers can become distracted while driving, and has installed a helpful Attention Assist feature which can warn the driver of inattentiveness and drowsiness, with adjustable sensitivity
to suit one’s preference. The Crosswind Assist, meanwhile, helps drivers cope with the effects of strong crosswinds and prevent the vehicle from veering away from the road. A more robust Driver Assistance package can be installed to include Distance Pilot DISTRONIC to automatically keep the car at a certain distance behind vehicles and Active Blind Spot Assist to warn against lateral collision in urban traffic environments, among other optional features. The E-Class design concept has an emphasis on intelligent assistance and aerodynamism that gives it an outstanding efficiency, superior safety and a quieter, smoother riding experience that can compete with other luxury-class models – arguably the cleverest choice for those searching for an intelligent business sedan.
HONG KONG BUSINESS | SEPTEMBER 2016 25
economic INSIGHT: exports to stabilise in 2016, and a slower pace of US rate hikes and headline growth, could be marginally better in 2017. However, Adrienne Lui from Citi Hong Kong begs to differ, saying that consumption weakness has further to run. “We think the weak consumption trend is well established, and the rate of y-o-y declines will likely remain in the high single digits throughout the summer, which will have lagging effects on hiring (9.2% of total employment is retail-related and 7.6% is accommodation and food servicesrelated) and shop rentals,” Lui says. “Aside from our above-mentioned concern about a possible further slowdown in tourism receipts in the summer, we do not see th e light at the end of the tunnel for local consumers.” Retail sales fell by 21%
Hong Kong economic bounce back feared to be hollow While economists are counting on a rebound for Hong Kong’s economy soon, the picture remains weak due to falling consumer confidence.
H
ong Kong may see its economic activity show signs of life in the short-term but economists are saying it isn’t time to celebrate just yet. With the slowing global economy and a soft demand for Hong Kong’s exports to boot, the perfect storm might still be brewing for the territory. According to Thomas Shik, acting chief economist at Hang Seng Bank, retail sales of consumer durables fell by almost 21% in May, its largest fall since February. Shik notes that this reflects the adverse impact of the persistent global economic uncertainty and financial market volatility on household spending activity. “In addition, the slowing pace of economic growth in mainland China has resulted in the number of visitors from the mainland to Hong Kong dropping by an annual rate of 8.3% in May after a 4% decline in April, pointing to a continued slowdown in tourist spending,” Shik says. Julia Wang, an economist for
26 HONG KONG BUSINESS | SEPTEMBER 2016
Retail sales of consumer durables fell by almost 21% in May, its largest fall since February.
HSBC concurs, saying “Weak global demand, especially from mainland China, has been a major drag on Hong Kong’s economy and remains a key downside risk.” Wang adds export growth registered the 13th straight month of contraction in May although the pace of contraction slowed from April. “Exports were down 0.1% y-o-y in May, compared with a fall of 2.3% in April,” she says. Meanwhile, Silvia Liu, an economist for UBS says consumption is expected Hong Kong retail sales, values
Source: CEIC, HSBC
Trade flows an illusion Additionally, Shik implies an illusion in the recent improvement in trade flows, as they appear to have been more related to higher commodity prices than to a robust global economic growth. “The Commodity Research Bureau (CRB) commodity price index, a basket of key commodities, has risen by about 10% in 2016 to date, but growth in advanced economies, in particular the US and the Eurozone, has remained moderate,” Shik says. “Without a pickup in growth in these economies, which are the leading markets for Asian exports, Hong Kong’s trade growth is unlikely to be sustainable,” he adds. According to OCBC Research, in comparison, growth in China’s imports from Hong Kong jumped 242.6% y-o-y after increasing 203.5% in the previous month. “Nonetheless, the persistent mismatch in data prints continues
economic INSIGHT: Exports to signal that fake invoicing activities continue to support capital outflow from the onshore market,” OCBC Research noted.
75bps reduction in rate increase could translate into interest savings of up to 1.0% of nominal GDP by end-2017,” she says.
Waves of Brexit on HK shores Meanwhile, while the United Kingdom may be 9,600 kilometers away from Hong Kong, waves of its referendum to leave the European Union may affect the territory’s economy significantly. Hang Seng’s Shik says while Hong Kong’s exposure to the UK may be low, there’s no discounting the territory’s dependence on the temperature of the global economy. “Although Hong Kong’s direct trade exposure to the UK is limited, with goods exports to the nation accounting for about 1.5% of total goods exports and 6.6% of total services exports, Hong Kong’s trade could still be adversely affected if the world economy slows in response to the UK’s ‘Leave’ vote,” Shik says. On th e other hand, UBS’ Liu expects Hong Kong to be less bad next year. “Lower rates for longer and the potential peak in USD should more than offset a moderately weaker DM. We reiterate our real GDP projection at 1.2%y-o-y for 2017, up from an estimated 0.6% y-o-y in 2016, and expect Hong Kong to temporarily stabilise under this muddling-through scenario,” Liu predicts. Liu explains that UBS now forecasts a total of 75bps Fed rate hikes by 2017, a reduction of 75bps from the old projection. “This is significant for Hong Kong, where private leverage is high and the economy is sensitive to interest rates. Lower rates will be constructive in the following ways. First, the expected debt service burden will now rise much more gradually. A
Not that big a deal? She adds that while the overall debt service burden will remain relatively high, the incremental drag from the rising interest cost will not be as big as what was previously predicted. “Second, outflows pressures from the HKD should be more moderate under the new US rate forecasts, and the tail risks of substantial and disorderly outflows have also somewhat eased,” Liu says. “Therefore, if the USD has peaked, even if it continues to hover at a high level, the incremental drag from the currency should start to taper off in 2H16. This is a key reason why we believe Hong Kong’s retail sector might stabilise next year.” However, Liu explains that it’s too early to tell if Hong Kong will be affected by Brexit lightly, moderately or greatly. “Under the current baseline muddling-through scenario, DM growth will only be moderately trimmed, so the direct negative impact on Hong Kong through the trade linkages will be small. But given heightened uncertainty there could be big downsides to this optimistic view,” she says.
Domestic economy showing
Source: CEIC, UBS
Brexit gives Hong Kongers chills Meanwhile, Shik adds that the uncertainty generated by Brexit will also make Hong Kong business and households sweat about their investments and consumption, which are undeniably already showing some signs of weakness. “Gross domestic fixed capital, a proxy of
Expenditure has slowed to 0.7%
Gross domestic fixed capital, a proxy of business investment, has recorded three consecutive quarters of annual decline and private consumption expenditure annual growth has slowed to 0.7%.
business investment, has recorded three consecutive quarters of annual decline and private consumption expenditure annual growth has slowed to 0.7%, a level not since the third quarter of 2009,” Shik says. As a result, Shik says investors have sought safe-haven assets, notably the US dollar, after the Brexit vote. “Following the US dollar’s strong run, the Hong Kong dollar has also strengthened, representing an additional factor weighing on the city’s trade and investment,” Shik adds. Investment contracts for Hong Kong Investment also contracted for Hong Kong, according to UBS’ Liu, widening by 10%. “Weak outlook is undermining private sector facilities investment, while the delay in funding approval by the legislative council has also temporarily slowed public infrastructure investment to a standstill,” Liu says. “The government’s commitment to increase housing supply should continue to support construction investment. But weak outlook and the delay in government funding approval will continue to undermine investment,” she adds. Liu also notes how Hong Kong’s CPI picked up to 2.9%. “Hong Kong occasionally experiences persistent, negative real interest rates that overstimulate the domestic economy. We expect the CPI (excluding the one-off government measures) to moderate to 1.8%y/y in 2016 from 2.5% in 2015,” she explains. HONG KONG BUSINESS | SEPTEMBER 2016 27
analysis: capital markets
What’s causing Hong Kong’s Hang Seng Index to dip?
Exports and imports have fallen for the previous months, and even the Shenzhen-Hong Kong stock connect isn’t helping boost momentum.
W
hen investors first caught wind of China’s economic slowdown, the Hang Seng Index, which is heavily geared towards China, started showing signs of decline. According to Helen Chan, head of treasury at OCBC’s Wing Hang Bank, the index felt the heavy weight of the financial and property sectors and Chinese names, hovering around the low level of 20,000 and registering low trading volume. Moreover, Chan adds that though an obvious inflow of funds to the Hong Kong stock market via the Shanghai-Hong Kong stock connect was good news to the territory, the amount was too small to produce a significant boost to the market. “In addition, the benefit of the Shenzhen-Hong Kong stock connect might have been priced in and the scheme is
28 HONG KONG BUSINESS | SEPTEMBER 2016
The index felt the heavy weight of the financial and property sectors and Chinese names, hovering around the low level of 20,000 and registering low trading volume.
expected to lend little momentum to Hong Kong’s stock market if there is nothing new compared with the existing stock connect scheme,” Chan says. Adding salt to the wound, Chan says Hong Kong’s economic prospects continue to be hazy as businesses become cautious with their spending and as local consumer demand slows down. The mainland’s flu Total value of retail sales fell for the 15th straight month, according to Chan, and the unemployment rate in the retail sector stayed high at 5.3%. All of these contributed to the HSI’s dip. “Also, Hong Kong’s exports have dipped for 13 consecutive months and imports have fallen for 16 months. Sluggish trade growth has resulted in high employment rates in the trade and wholesale sector,” Chan
enumerates. The banking sector isn’t cheery either, she says, as Moody’s recently downgraded the outlook of Hong Kong’s banking sector for the next 12 to 18 months to “negative” due to the closer interconnection with mainland China. “As mainland-related loans accounted for almost half of the Hong Kong banking system’s total loans and advances the mounting credit risks of Chinese names, after several defaults this year, add downward pressure to Hong Kong’s banks,” Chan explains. Everything seems to be linking down to the mainland’s economic flu. The silver lining is that the exposure to Chinese companies is decreasing due to the narrowing interest rate differentials across the border and Hong Kong banks’ increasing cautiousness of Chinese names. “This may help prevent deterioration of the asset quality of the Hong Kong banks,” she says. Meanwhile, Hong Kong’s dim sum bond market isn’t any better, as it is relatively sluggish with new issuances dropping to RMB18.6 billion during the first half of this year, much lower than RMB68.7 billion during January to November 2015. “The weakness in the offshore yuan bond market may be attributed to the depreciation of the yuan. Besides, the liquidity of the market is also relatively tight as compared to the onshore market,” she says. “Moreover, the lower yield of onshore yuan bonds and the development of panda bond market also distracted foreign potential issuers from dim sum bond market.” Chan says elsewhere, the continuous drop in housing prices, which plummeted by 7.8% in May, and unmoving borrowing costs have brought some potential home buyers back to the market, bringing transaction volume up in recent months. There’s no denying that the dimmer economic outlook for Hong Kong and the global uncertainty after Brexit have both dented investors’ sentiment,
analysis: capital markets sidelining them from the stock market. Additionally, the influx of Hong Kong’s housing supply in the next 2-3 years, as well as the normalisation of the Fed’s monetary policy leave Hong Kong’s housing property market in a correction period. “The significant shrinking transaction volume since 2H 2015 showed that investors stayed away from the housing market,” Chan opines. A turnaround ahead? However, Chan says this is not the whole picture. She says since the Shenzhen-Hong Kong stock connect is set to be launched in the second half of 2016, Hong Kong may see a pickup in investors’ confidence to some extent amid the capital inflow to the territory’s stock market. “Also, the panic of uncertainty following Brexit faded gradually with major central banks bracing for easy monetary policies and pledging to inject more liquidity at least in the medium term. As such, both local and foreign investors may return to Hong Kong capital market,” she says. Meanwhile, more bright spots are waiting for Hong kong, as the transaction volume in Hong Kong’s property market climbed up notably in the recent three months, signaling that the investors are willing to enter the housing market again. “After the U.K. voted to leave the EU, the Fed is more likely to slow its rate hike pace, allowing borrowing costs to remain low for some time and the housing market in Hong Kong to take a gradual correction,” Chan
explains. She says all signs are pointing towards a turnaround in the housing market. “Moreover, as the HIBOR is unlikely to show a steep increase this year, the banks are allowed to lower mortgage rates. With housing cooling measures in place, developers also offer a variety of discounts for the prospective buyers, prompting homeowners to slash prices in the secondary market,” she adds. It’s not yet time to celebrate though, as OCBC Wing Hang’s Chan says Hong Kong’s economy will continue to be subpar as China’s economy continues to slow down amid its economic reform. Essential reform However, Chan insists that reform in the stock market is essential for Hong Kong to successfully tap the growing number of foreign investors in the financial and property sectors who are searching for yields on innovation, such as high technology, Fin-tech and so on. “Besides, as more Chinese companies have listed in the Hong Kong stock market, we expect that China’s continuous slowdown may dent investor sentiment in the Hong Kong stock market in the coming years,” Chan says. Moreover, dubbed as a risky asset, Chan says the RMB is more likely to face downward risks given the Fed’s tightening and the uncertainty over the outlook of the U.K., the EU and the lingering geopolitical risks. Meanwhile, Hong Kong’s initial public offering (IPO) market is a shining beacon in its markets
Recovery denied for manufacturers
Source: Hong Kong Productivity Council, Standard Chartered Research
The ShenzhenHong Kong stock connect is set to be launched in the second half of 2016, Hong Kong may see a pickup in investors’ confidence to some extent.
environment, as the volume of IPOs and funds raised in Hong Kong for the first half of 2016 is the most globally, according to a report by PricewaterhouseCoopers (PwC). PwC says IPO activities in Hong Kong continued their stellar performance in comparison to the London Stock Exchange in second place (total funds raised HK$31.6 billion) and the New York Stock Exchange in third place (total funds raised HK$28.8 billion), a testament to the firm leading position that Hong Kong continues to hold in global capital markets. PwC says Hong Kong isn’t slowing down either when it comes to IPOs, as it anticipates more buoyancy for the second half of 2016 especially in Q4, the peak season for IPO listings. “Hong Kong’s fundraising market looks poised to take the top spot in the world,” PwC says. “In the first half of this year, there were a total of 40 new listings in Hong Kong, a 22% decrease compared to the same period last year. Total funds raised reached HK$43.5 billion,” PwC says. The culprit of this slowdown is the usual suspect, PwC says. Market fluctuations According to Eddie Wong, partner of capital markets services at PwC Hong Kong, although there were some market fluctuations in Hong Kong in Q1, it improved in Q2. In 1H 2016, Eddie Wong says most IPOs on the Main Board were financial services companies, followed by retail, consumer goods and services, as well as industrial products. “With regard to funds raised in new listings, IPOs of financial services companies continued to lead the race, making up 84% of total funds raised on the Main Board. This reflects the fact that many mainland banks and financial institutions continued to actively pursue optimal timing to list in Hong Kong in order to raise capital and meet future development needs,” Eddie Wong says. HONG KONG BUSINESS | SEPTEMBER 2016 29
co-published corporate profile
Hong Kong Polytechnic University addresses the challenge for today’s MBA programmes PolyU has worked to benchmark its MBA structure, content, and teaching approaches against other programmes to avoid being stagnant.
PolyU’s modern campus
A
master’s degree in business administration or an MBA has been increasingly valuable in international business and financial hubs such as Hong Kong. MBA programmes aren’t necessarily the same however, with certain universities such as The Hong Kong Polytechnic University (PolyU) standing out due to its unique and practical curriculum. According to Dr Mak Wai-ming, MBA Programme Director at The Hong Kong Polytechnic University, PolyU’s MBA programme is one-of-a-kind as it is aimed at nurturing leaders with practical wisdom. Dr Mak says the university not only equips its students with theories and facts about business management, but it also produces graduates with high-level and all-around management and leadership skills that are applicable to organisations and operations of different natures. Dr Mak adds PolyU regularly reviews and improves its MBA curriculum to allow students to gain fresh and relevant management techniques and knowledge. “For example, our programme incorporates system dynamics that train students to tackle a challenge by viewing it as an element within an overall system,” Dr Mak says. Extensive networking programme Field Study is one subject popular with students of PolyU’s MBA programme, where the university arranges two field trips each
year. “In 2016, we’ve been to Frankfurt and Perth. Our students visited renowned corporations and gained management insights from different parts of the world,” says Dr Mak. Additionally, Dr Mak stresses that networking also constitutes an important part of PolyU’s MBA. “Our students and alumni share experience, expertise and ideas with each other, thereby building up friendship through a wide variety of events and activities including dinners, outings, workshops and forums,” Dr Mak says. Among PolyU’s recent MBA networking activities include its Social Innovation Seminar 2015, MBA Alumni Association Oyster Shucking and Wine Pairing Workshop, its MBAAA hiking team x ORBIS walk for Sight 2015, and its “The Art of War on Leadership” lecture. Meanwhile, PolyU’s networking programme doesn’t end when the student graduates. The university has its PolyU MBA Alumni Association and is set up as a platform for its MBA students and alumni to connect with each other. “The platform is to add to, to compliment and to strengthen our students’ and alumni existing ones in private, social and professional life,” Dr Mak says. Constantly innovating The challenge for today’s MBA programmes is avoiding being stagnant, and Dr Mak says PolyU has held this problem in check. Over the past few years, PolyU has worked to further
“QS World University Rankings by Subject 2016 show that PolyU’s Business and Management Studies ranks 39th in the world.” 30 HONG KONG BUSINESS | SEPTEMBER 2016
improve its MBA, benchmarking its structure, content, and teaching approaches against the best programmes in the world. “We aim to enhance students’ leadership skills, develop their capacity to bridge theory and practice, and provide them with a strong professional network,” Dr Mak says. PolyU’s students can also expect a load of innovative and extensive workshops. “From 2016/17 intake, the “MBA Investigative Report” will be changed from a compulsory subject to an elective. By reducing the number of compulsory credits and leave more credits for electives, students may choose the electives according to their needs and interests.” While other MBA programmes only equip students with quantitative skills while producing ‘number-crunchers’ without a real feel for business and people, Dr Mak says PolyU’s graduates are trained as practical thinkers who are ready to contribute to their organisations when they graduate. Excellence has always been the name of the game for PolyU. For instance, its Faculty of Business has made remarkable progress in the last few years. “QS World University Rankings by Subject 2016 show that PolyU’s Business and Management Studies ranks 39th in the world,” Dr Mak says. “Starting from 2015/16 intake, a new Leadership Development Programme delivered by practitioners and DBA alumni was introduced to the MBA programme, it aims to bring cutting-edge leadership skills to the students.”
Dr Mak Wai-ming MBA Programme Director Hong Kong Polytechnic University
HONG KONG BUSINESS | SEPTEMBER 2016 31
Industry briefing: banks
The territory is losing its lustre as a banking centre
Hong Kong’s golden age of banking is officially over
Over the past decade, Hong Kong has been the darling of the Asia-Pacific in banking, but a perfect storm has shut the door for more growth.
W
hen China began its aggressive expansion about a decade ago, Hong Kong was a direct benefactor, as hundreds of industrial goliaths and banks started to tap the territory’s financial services firms for their financial know-how, as well as billions worth of debt and share issues. This fuelled robust growth not only in Hong Kong’s banking sector, but also in tourism and luxury goods. But as quickly as Hong Kong rose from the Chinese expansion, it is also swiftly losing its banking lustre as the mainland enters into a phase of drastic slowdown. According to a report by McKinsey and Company, margins and returns on equity are shrinking. “For instance, the Asia Pacific banking industry’s ROE slipped to 14% in 2014, from 15% a year earlier,” the report 32 HONG KONG BUSINESS | SEPTEMBER 2016
Throughout the region, squeezed margins put pressure on bank profitability, although other factors, such as the cost of risk and taxes were also culpable.
says. McKinsey says the region, along with its financial industry, is undeniably settling into a new era of slower growth and greater challenges in generating economic profit. McKinsey notes that initial symptoms of a decline started manifesting themselves in 2015, when Asia Pacific profit pools, led by Hong Kong, started edging lower.
“Even as profits have grown, in half the Asia-Pacific markets studied, ROE declined between 2005 and 2014. Throughout the region, squeezed margins put pressure on bank profitability, although other factors, such as the cost of risk and taxes were also culpable,” the report notes. Ranking agencies have also been taking notice. Rankings firm Moody’s, for instance, has recently changed the outlook of DBS Bank Hong Kong as well as OCBC Wing Hang Bank from stable to negative due to expectations of a more challenging operating environment for Hong Kong’s banks. “DBS Bank (Hong Kong) and OCBC Wing Hang Bank’s long-term deposit ratings incorporate multiple notches of uplift based on Moody’s assessment of a very high level of affiliate support in times of need. The outlook on their ratings is therefore affected by the change in outlook for DBS Bank’s and OCBC’s ratings, respectively,” Moody’s says. HK’s new resolution laws Meanwhile, Hong Kong’s banks are also currently pressured by the territory’s new resolution law, which throws a wrench into the financial institutions’ recovery and resolution plans. According to a report by Fitch Ratings, the new law closes the gap between Hong Kong’s limited power to intervene in financial institutions and the Financial Stability Board’s key attributes for effective resolution regimes. Fitch says Hong Kong is
SME’s involved in the new ecosystems are credit-hungry
Source: McKinsey and Company
industry briefing: banks one of the few Asian jurisdictions to have implemented resolution laws that specifically allow for bail-in. Cross-border resolution plans are particularly important because the bulk of banks operating in Hong Kong are owned by foreign groups and resolution of a foreign parent could have spillover consequences for the Hong Kong subsidiary. Fitch Ratings expects that local banks forming part of larger international groups, such as HSBC and Standard Chartered, will be able to draw on their group’s resolution plans. “Foreign parents may position their subsidiaries for resolution by the Hong Kong host regulator and plan for external loss-absorbing capital issuance, while others may look for resolution at the parent level by the home regulator, intending to upstream potential losses through issuing loss-absorbing capital to their parent,” Fitch Ratings says. Additionally, Fitch says authorities will also have to seek reassurance that continuity of critical financial services will be preserved at the Hong Kong banks. “We also expect the HKMA to publish comprehensive guidance on how they will determine the point of non-viability for banks. The law links non-viability to a breach of a financial company’s authorisation and licensing criteria and also provides flexibility, enabling resolution authorities to exercise judgement depending on prevailing circumstances,” Fitch says. Staff turnover is also a major challenge for Hong Kong’s financial institutions as an uncertain economic outlook and regulatory
By 2020, we estimate that 14% of the global assets held by affluent households, those earning $100,000 to $1 million a year.
China has driven profits, though growth slowed in 2015
Source: McKinsey and Company
Asia-Pacific has propelled global banking over the past decade
Source: McKinsey and Company
pressure cause investment banks to be more cautious in their approach to hiring, according to Robert Walters. “Larger banks have sought to address this in recent months by increasing base salaries and fast-tracking better performers to improve staff retention. We anticipate that more banks will follow suit during the year, reflecting new market norms,” a report by Robert Walters says. New entrant challenges “New entrants to the asset management market will continue to drive salaries upward in 2016 by paying above-market rates for top talent, particularly for those in senior sales roles,” the report adds. Meanwhile, due to increased job insecurity, housing transaction volume has dropped by 38% in Hong Kong, according to OCBC, causing the number of approved mortgage loans to dip by 34% to 26,276 over the first five months. In order to attract more applications for loans, OCBC says several banks in Hong Kong further cut the mortgage rates from 1-month HIBOR plus 1.6% to 1-month HIBOR plus 1.5%. “The Fed’s likelihood of slowing rate hike pace post Brexit is the main support for the banks to offer lower mortgage rates. The Fed’s slower tightening will also ease the capital outflow from Hong Kong, allowing HIBOR to stabilise at an historical low for some time,” OCBC notes. “As such, borrowing
costs might remain low and in turn underpin a rebound in housing transactions which rose for the third straight month on monthly basis.” However, with the housing cooling measure in place, OCBC says the upward risks on the housing market are little or none. “Instead, as the Fed may still continue to tighten its policy albeit at a gradual pace, coupled with more housing supply ahead, renewed downward risks are expected to drag down the housing market again after recent shortlived pick-up,” OCBC adds. On the other hand, McKinsey adds that the rapid rise of an affluent middle class in Asia-Pacific presents a significant opportunity for Hong Kong’s banks. “By 2020, we estimate that 14% of the global assets held by affluent households, those earning $100,000 to $1 million a year, will be in AsiaPacific, excluding Japan. The region will become the world’s largest affluent market, easily surpassing North America,” the report says. McKinsey says assets held by China’s affluent class, for instance, will likely grow by a whopping $3.4 trillion by 2020 and will account for most of the region’s growth and benefiting its banks handsomely. “By 2020, revenues from affluent class households are expected to reach $141 billion, about 12% more than the revenues brought in by serving high-net worth households,” the report says. HONG KONG BUSINESS | SEPTEMBER 2016 33
RANKING: Banks source of risk” stemming from its sizeable mainland China exposure (MCE).
Hong Kong’s banks are facing tough times
The hard and bumpy road ahead for Hong Kong’s banks
Weak growth in global demand has left the territory’s banks gasping for air.
W
hile Hong Kong banks might not be careening off a cliff anytime soon, the next year or so will be marked with bumps and bruises as they trudge through a challenging operating environment, a growing heap of problem loans and rising credit costs. Moody’s Investors Service maintained a negative outlook on Hong Kong’s banking system as of the end of June, citing deteriorating operating conditions. “We expect a more challenging operating environment for Hong Kong banks in the coming 12-18 months, because of the weak growth in global demand, and also because the banks’ borrowing costs are higher, owing to further monetary tightening in the US,” says Sherry Zhang, analyst at Moody’s. “This situation will pressure the system’s asset quality
34 HONG KONG BUSINESS | SEPTEMBER 2016
The value of an MBA is not lost on companies as it can help professionals up skill and grow their business network, benefitting the organization.
and profits, and test its resilience, given the territory’s elevated property prices and the banks’ growing linkages with Mainland China,” adds Zhang. The negative outlook also reflects the credit rating agency’s expectation that large banks in the territory will receive less government support. Problem loans, meanwhile, are expected to increase from current low levels due to the slower Hong Kong economy and likely higher interest rates that tend to push up loan delinquencies. Zhang adds that Hong Kong banks will have to grapple with increased pressure on profitability amid lower interest income and higher credit costs. Fitch Ratings is also signaling caution, and one of its main concerns is that the Hong Kong banking system still has “significant concentration and
Risk strategies Amid the prospects of rising problem loans and MCE risk, Hong Kong banks should start developing a more comprehensive risk management strategy that covers all aspects of the lending cycle from pre-loan assessments to postlending management, says Paul McSheaffrey, head of banking at KPMG Hong Kong. He says banks are starting to look at alternate ways to improve their profitability based on KPMG’s latest Hong Kong Banking Survey which reviewed the top 10 locally incorporated banks in Hong Kong. The survey reveals that some banks are focusing on enhancing their customer experience offering, as well as their mobile and other payment service channels to improve top-line growth. Others might also look at managing costs optimally by harnessing data to improve regulatory reporting or implementing a cost management structure. Who made it to HKB’s list? Hong Kong and Shanghai Banking Corporation (HSBC) remains Hong Kong’s largest licensed bank in 2016 with 21,112 staff, a tad lower than the 21,153 reported a year earlier. HSBC deputy chairman and chief executive of HSBC Asia Pacific Peter Wong notes that hiring will continue this year despite tough economic conditions and a slowing Chinese economy. Hiring however, he said, is focused on role replacements on operations rather than for new business. HSBC is followed by Bank of China and Hang Seng Bank with 14,000 and 8,237 staff, respectively. Altogether, Hong Kong’s 20 largest licensed banks increased staff by 5% to 81,253 staff in 2016.
RANKING: Banks 2016
BANK
2015
Number of Employees 2016
Number of Employees 2015
CEO/ Country Head
1
HONG KONG AND SHANGHAI BANKING CORPORATION
1
21,112
21,153
DIANA CESAR
2
BANK OF CHINA*
2
14,000
14,000
YUE YI
3
HANG SENG BANK
3
8,237
8,206
ROSE LEE WAI MUN
4
STANDARD CHARTERED BANK*
4
6,000
6,000
MAY TAN
5
BANK OF EAST ASIA
5
5,993
5,803
DAVID K.P. LI
6
CITIBANK
6
4,800
5,000
WEBER LO
7
DBS BANK
7
4,300
4,000
SEBASTIAN PAREDES
8
CHINA CONSTRUCTION BANK (ASIA) CORPORATION
9
2,506
2,387
JIANG XIANZHOU
9
DAH SING BANK*
8
2,482
2,482
GARY WANG
10
OCBC WING HANG BANK*
10
2,165
2,165
Dr FUNG YUK BUN PATRICK JP
11
INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA)
11
2,127
2,071
JIANG YISHENG
12
WING LUNG BANK*
12
1,800
>1800
ZHU QI
13
CHINA CITIC BANK INTERNATIONAL
12
1,700
>1800
ZHANG XIAOWEI
14
SHANGHAI COMMERCIAL BANK
14
1,543
1,495
DAVID SEK-CHI KWOK
15
FUBON BANK
15
997
901
RAYMOND WING HUNG LEE
16
CHIYU BANKING CORPORATION*
16
600
600
MAN-KUNG NG
17
PUBLIC BANK
17
576
580
TAN YOKE KONG
18
STANDARD BANK*
18
200
200
A PANG
19
TAI SANG BANK*
19
100
100
PATRICK CHING HANG MA
20
TAI YAU BANK*
20
15
15
ARTHUR KO
TOTAL
81,253
77,158
Data provided by companies. Survey Period: June-July 2016 *Obtained from company websites, media reports, annual reports and/or previous data.
HONG KONG BUSINESS | SEPTEMBER 2016 35
analysis: SME forwardlooking in that it measures company sentiment for the coming quarter. The most recent survey was conducted in July 2016, and managers of 862 SMEs across nine industries were interviewed. The survey contains nine standard questions to determine the changes SME managers expect in various aspects of their business in the coming quarter. Three of the five main subindices contributed to the improvement, led by ‘hiring’ returning above 50 to its highest in four quarters. Investment, on the other hand, extended its downtrend for a fourth quarter. However, the most notable drop was in the ‘global economic outlook’ – to 16.0 from 23.2. Not only is this the lowest on record, but the sub-index also came in below 20 across all industries. SMEs’ business confidence are hitting record lows
SMEs find crisis of confidence Despite a recent from record low confidence, it’s barely enough for SMEs to offset weak investment appetite and strong external headwinds.
S
entiment among small and medium-sized enterprises (SMEs) in Hong Kong rebounded, albeit only modestly, in Q3-2016 from a record low. The Standard Chartered Hong Kong SME Leading Business Index (SME Index), released jointly by Standard Chartered Bank and the Hong Kong Productivity Council, rose to 41.1 in Q3-2016 from 40.4 in Q2-2016. This is still the second lowest level on record. The ‘sales’ and ‘profit margin’ sub-indices recovered from very weak levels; more encouraging was the ‘hiring’ sub-index returning back above 50. However, these levels are barely enough to offset weak investment appetite (especially among retailers) and strong external headwinds. The ‘global economic outlook’ sub-index plunged to a dismal 16.0 in Q3 from 23.2 in Q2. All three of our main industry sub-indices (manufacturing, import/ export/wholesale, and retail) came in below 40, and the ‘global economic 36 HONG KONG BUSINESS | SEPTEMBER 2016
The ‘global economic outlook’ subindex plunged to a dismal 16.0 in Q3 from 23.2 in Q2.
outlook’ sub-index was below 20 across all industries – the worst collective performance on record. This reflects widespread pessimism and the absence of a clear economic growth driver, for now. Retailers may have turned more positive towards hiring, but as external uncertainties continue to spill over to domestic sentiment, we believe households will remain cautious about spending in the near term. Financial and insurance saw the biggest jump among all industries, reflecting its sensitivity to receding China-induced worries. We believe weak global growth, looming geopolitical risks and cautious domestic sentiment will continue to limit any rebound in the SME Index in the coming quarters. What Hong Kong SMEs expect in Q3-2016 The SME Index is created, and the survey conducted, by the Hong Kong Productivity Council, sponsored by Standard Chartered Bank (Hong Kong) Limited. It is
Weathering changes More than half the SME respondents (51%) consider ‘FX volatility’ as the main channel of impact, followed by a distant second and third in ‘less trade flow’ (17%) and ‘stock market volatility’ (11%), respectively. The ‘global economic outlook’ subindex was at 40.7 a year ago, and 46.9 in Q3-2014; the more recent decline (in H1-2016) was due to the China slowdown and increased Renminbi volatility. We believe China-induced concerns should further stabilise in H2-2016, the fact remains that, fundamentally, global demand is likely to remain weaker for longer. Better markets alone may not be enough to turn SME sentiment around soon. ‘Import/export/wholesale trade’ and ‘financial and insurance’ contributed most of the headline SME Index’s q/q improvement this time. However, the rebound in import/export/wholesale trade was more to do with it being the worst-performing industry in Q2, in addition to a likely boost ahead of the holiday season. We believe the relief rally on the back of a stabilising China was long overdue. By Kelvin Lau, senior economist, HK, Standard Chartered Bank
co-published Corporate profile
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post-event coverage: tibco now 2016
Murray Rode, CEO: “A lot of companies used to not care about this whole notion of real-time but today it’s conventional wisdom for everyone: real-time is the new norm.”
Thomas Been, CMO: “Our annual TIBCO NOW conference assembles digital technology experts to discuss, share, and collaborate on the opportunities and challenges facing digital businesses today.”
Matt Quinn, CTO: “We are continuing to invest in focused innovation. From an engineering perspective, it is important to think not just about what we are building, but also how we build them.”
Digital transformation takes center stage at TIBCO NOW 2016
Most of the problems and strategies that digital businesses are facing have, at their core, integration and dealing with data analytics as two key needs.
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ow more than ever, companies are feeling the pressure of improving their digital offerings as most consumers want their experiences to be as purely digital as possible. Consumers now expect to get loans, pay bills, or even get financial advice via their mobile phones without ever having to go to a bank branch. Similarly, customers interact with airline companies digitally when finding a flight or booking a ticket even before they get on a plane. The opportunities and challenges brought about by this change in customer preference and behaviour are driving each company’s need for digital transformation. This is what TIBCO Software Inc., a global leader in integration and analytics, wanted to address in the annual TIBCO NOW conference held at the MGM Resort & Casino in Las Vegas from
38 HONG KONG BUSINESS | SEPTEMBER 2016
TIBCO NOW 2016 is the company’s first conference as a private company after having been a public company for 15 years.
May 17 to 19, 2016. “Our annual TIBCO NOW conference assembles digital technology experts, as well as the most innovative customers and partners to discuss, share, and collaborate on the opportunities and challenges facing digital businesses today and in the future. This year’s theme, Destination: Digital, embodies TIBCO’s mission to enable attendees to gain a deeper understanding of their customers, ecosystem, and processes to propel their journey towards being a digital enterprise,” said Thomas Been, TIBCO’s chief marketing officer. TIBCO NOW 2016 is the company’s first conference as a private company after having been a public company for 15 years. “We are launching the most number of new products and services this year. Moreover, while some conferences
may have a strong marketing orientation, TIBCO NOW 2016 has a hard core content orientation. It really is more about products and what we’re doing as a technology company,” said Murray Rode, TIBCO’s chief executive officer. “Our biggest challenge was how to organise it all so it’s digestible for people. Fundamentally, this conference was supposed to be a sign of TIBCO’s rebirth to some degree.” The highlights of the conference include keynotes from TIBCO executives as well as special guest speakers such as NASA chief engineer Adam Steltzner and futurist Ray Kurzweil. One of the most important things in innovation, according to Kurzweil, is timing: being at the right place with the right idea at the right time. “If you’re too early, you don’t have the enabling factors to succeed. If you’re
post-event coverage: tibco now 2016 The digital experience of the customer is so dynamic that you have to automate your response in order to really be responsive.
Nearly 2,000 IT executives attended TIBCO NOW 2016
too late, you miss the window of opportunity,” Kurzweil noted. There were more than 100 breakout sessions arranged in three tracks where industry experts talked about API management, cloudnative architecture, leveraging fast data, the internet of things, and other pertinent trends and issues in IT. The event was attended by nearly 2,000 IT executives and was supported by 25 sponsors. Real-time is the new norm In his keynote speech at the opening day of the conference, Rode said most of the problems and strategies that digital businesses are facing have, at their core, integration and dealing with data analytics as two key needs. He noted that most of the digital transformations we see today have three common challenges: 1) there is a need for a seamless form of interconnection among the parts that make up the solution; 2) there is a need to move and understand a lot of information in real-time; 3) there is an increasing element of analysing and predicting what to do next. “The digital experience of the customer is so dynamic that you have to automate your response in order to really be responsive. A lot of companies used to not care about this whole notion of real-time but today it’s conventional wisdom for everyone: real-time is the new norm,” he added. From the core to the edge Another interesting facet of the digital business is that it’s not just about enabling companies to operate more efficiently, but it’s also
about giving the customer a richer experience. To enable this, TIBCO is also shifting its focus from the core to the edge. “It used to be we were selling a lot of technology to improve the core, the systems of record, the data centres. What we’re seeing today is a shift more to the edge. It’s these outer systems, these service points to the customers, that require a slightly different application of the kind of technologies we provide,” Rode said. “This is why we have simplified the way we position what we do as falling into two big categories: interconnecting everything (people and processes, systems and data, APIs) and augmenting intelligence (dashboarding, embedded reporting, data visualisation, streaming analytics),” he added. Focused innovation Matt Quinn, TIBCO’s chief technology officer and EVP for products & technology, also spoke about the company’s products and services. “We are continuing to invest a significant amount in focused innovation. From an engineering perspective, it is important to think not just about what we are building, but also how we build them.” Quinn revealed three core principles that were developed early last year about the way TIBCO builds its products: cloud first, ease of use, and industrialisation. “Everybody defines cloud differently. What we wanted to do with our products is think about cloud and cloud architecture first and foremost - whether they are on premise or in
the cloud. What we also needed to recognise is that there are multiple different flavors of cloud and cloud journeys,” said Quinn. Ease of use is all about shortening the time to results. It involves improving user experience, industry solutions and frameworks, and building a community. Finally, industrialisation is about enriching the TIBCO ecosystem, and it is made up of three aspects: improved cross-product integration (85% of customers use more than one TIBCO product, so all products need to be highly integrated to bring more value to customers), improved DevOps support (TIBCO started to work closer with the broader industry to make sure the products fit within other modern architectures), and internet of things (IoT). “Our goal is to be everywhere. We are expanding the platform where you need us and we’re doing it in the easiest possible way,” said Quinn. New products Two of the many products launched at the conference were Project Flogo and TIBCO Graph Database. Project Flogo is an ultra-lightweight integration software solution that introduces open source licensing to enable developers in building the broadest open IoT community. Project Flogo functions as one the first design bots for IoT edge application development, with a tilebased, zero-code environment for building and deploying integration and data processing directly onto connected devices. Meanwhile, the TIBCO Graph Database is a translytical database that transforms a complex web of dynamic data into meaningful, comprehensible, and traversable relationships to help deliver real-time insight and action. It stores all data as intelligent schema that makes it easy to discover and model any relationships as graphs with nodes and edges. Combined, these technologies increase interconnectivity, make communication seamless, augment the intelligence of the IoT, and expand the edge of digital business for organisations. By Roxanne Primo Uy HONG KONG BUSINESS | SEPTEMBER 2016 39
EVENT COVERAGE: HKB AWARDS
Meet Hong Kong’s trailblazing firms at the annual Hong Kong Business awards
O
ver 30 companies were awarded as Hong Kong Business recognised the territory’s cream of the crop in its annual International Business Awards and Business Ranking Awards. The International Business Awards and Business Ranking Awards 2016 honoured 30 international and local companies, which are the best and brightest in their sectors. The awarding ceremonies were held last 14 July at the Azure Restaurant Slash Bar. According to Hong Kong Business publisher Tim Charlton, “Tonight, we are honouring the firms who have strived to improve the lives of people not only in Hong Kong, but also in the entire region. This is a night of winners.” The winners of the International Business Awards and Business Ranking Awards 2016 are as follows:
Largest Hotels Rank #21 The Royal Pacific Hotel and Towers Largest Hotels Rank #23 Marco Polo Hongkong Hotel Largest Hotels Rank #25 Hong Kong Skycity Marriott Hotel Largest Insurance Firms Rank #1 HSBC Insurance
Motion Picture & Video MAR VIVO FILMS
Largest Insurance Firms Rank #15 General International
Largest Accounting Firms Rank #2 Ernst & Young
Largest Insurance Firms Rank #20 Standard Life Asia
Largest Accounting Firms Rank #8 Crowe Horwath
Largest Law Firms Rank #3 Clifford Chance
Largest Accounting Firms Rank #9 SHINEWING (HK) CPA Limited
Largest Law Firms Rank #6 King & Wood Mallesons
Largest Accounting Firms Rank #10 Baker Tilly Hong Kong
Largest Law Firms Rank #10 Reed Smith Richards Butler
Largest Accounting Firms Rank #11 Mazars
Largest Law Firms Rank #14 Li & Partners
Largest Accounting Firms Rank #18 HLM CPA Limited
Largest Licensed Banks Rank #6 Citibank HK
Largest Law Firms Rank #23 C K Yau & Partners
Largest Licensed Banks Rank #9 China Construction Bank (Asia)
Largest Hotels Rank #7 Renaissance Hong Kong Harbour View Hotel
Largest Licensed Banks Rank #15 Fubon Bank
Largest Hotels Rank #8 The Park Lane Hong Kong
Largest MBA Programmes University of Wales Newport, MBA International Academy of Management
Largest Hotels Rank #9 Harbour Grand Hong Kong Largest Hotels Rank #16 Harbour Plaza 8 Degrees Largest Hotels Rank #18 Pentahotel Hong Kong, Kowloon
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Largest MBA Programmes PolyU MBA The Hong Kong Polytechnic University Largest MBA Programmes CUHK Executive MBA The Chinese University of Hong Kong Business School
Andrew Ross for Baker and Tilly HK and Tim Charlton
Angela Wong of Hong Kong Skycity Marriott Hotel with Tim Charlton
Charbon Lo, Derek Chaum, Roy Lo, Patrick Law
Anthony Woo and May Wong of Reed Smith Richards Butler
Asta Leung of China Construction Bank with Tim Charlton
Catherine Mun of Li & Partners with Timothy Charlton
Vicky Wong from The Park Lane Hong Kong with Tim Charlton
Catherine So of Harbour Plaza 8 Degrees with Tim Charlton
Roy Lo of SHINEWING (HK) CPA Limited with Tim Charlton
Tim Charlton of HKB Magazine with Patrick Law of Ernst & Young
Charbon Lo of Crowe Horwath and Tim Charlton HONG KONG BUSINESS | SEPTEMBER 2016 41
Kevin Lam of Pentahotel Hong Kong, Kowloon with Tim Charlton
Kevin So and Brian Koo of Clifford Chance with Timothy Charlton
Dr Mak Wai Ming of The Hong Kong Polytechnic University
Chely Chan of Standard Life Asia with Tim Charlton
Christine Lai of The Royal Pacific Hotel and Towers with Tim Charlton
Chun So of the Chinese University of Hong Kong Business School with Tim Charlton
Michelle Chan of Mazars with Tim Charlton
Patrick Law of Ernst & Young with Tim Charlton
Praveen Daswani of Generali Worldwide with Tim Charlton, publisher o Hong Kong Business Magazine
42 HONG KONG BUSINESS | SEPTEMBER 2016
Dennis Ha from Fubon Bank With Tim Charton
Renaissance Hong Kong Harbour View Hotel’s Cecilia Wong with Tim Charlton
Julia Leung and Kevin Lam of Pentahotel Hong Kong, Kowloon with Loius Shek and Tim Charlton of Hong Kong Business Magazine
Chun So of the Chinese University of Hong Kong Business School with Tim Charlton
Karel Wan and Eric Chan of Harbour Grand Hong Kong
Sunny Yee and Rickson Chow from the International Academy of Management
Julien Prudhomme of Mar Vivo Films and Tim Charlton
KingTong Tam and Joseph Yau from C K Yau and Partners with Time Charlton
HONG KONG BUSINESS | SEPTEMBER 2016 43
ECONOMICs
Ian Perkin
The brave new world of low returns
A
sian stock markets closed the first half of 2016 in much better shape than might have been expected after the awful start to the year, and have gone higher since June 30, despite continuing global economic and political concerns. Hong Kong’s Hang Seng Index was down just 1.9% for the six months to 20,794 points (see accompanying table) after slipping below 20,000 points earlier in the year, mainly on worries about the domestic economy and the mainland outlook. This was pretty much in line with global trends, with New York and London off a few percentage points after more dramatic declines earlier in the year and the MCSI world index being off half a percentage point. New York has done particularly well since June 30 with both the Dow Jones and S & P indices hitting new records. Tokyo and Shanghai both disappointed with double-digit losses in the opening six months of the year but this was hardly surprising given Japan’s economic woes and the mainland’s stellar run, and savage correction during 2015. Elsewhere in the region, markets were mostly fairly steady (either up or down a couple of percentage points for the six months), with the exception of some of the smaller markets, like Indonesia and New Zealand, with close to double-digit gains. Political and economic shocks Markets, both worldwide and within Asia, remain nervous and subject to external political and economic shocks (with Britain’s Brexit vote being the latest example), as well as generally slower economic and trade growth globally. Within the region itself, investors will be nervous about any increased tensions that might arise as a result of The Hague rulings on the competing territorial claims in the South China Sea and how the various players might react over time. Looked at globally, it is apparent that there is plenty of money around seeking a (safe) home in a loose monetary environment with low or negative rates on government bonds. But while fixed interest markets have long come to terms with low (or even negative) yields (Germany and Japan particularly, but with even the US postponing further official rate rises), equity investors are still coming to grips with the new era of low returns.What is apparent in equities and commodities is that where a market “dip “opens up an opportunity for any sort of return, cash will flood in to take advantage of it. This is likely to mean continuing volatility in these markets. Through to the end of the year and beyond, with yields low everywhere, the opportunistic trader will be king in both equities and commodities. The big question over all markets is just how long the low yield environment will last? Low yields were the historic norm but this seems to have 44 HONG KONG BUSINESS | SEPTEMBER 2016
IAN PERKIN Independent Economic Consultant perkin888@hotmail.com Focus on Asia: Selected market performance 2016
Source: Relevant markets
been largely forgotten over the past few decades of high returns pretty much everywhere. The US is clearly intent on lifting official interest rates as soon as it can (and thereby lifting fixed interest returns and increasing its own monetary flexibility), but has been frustrated by prevailing global conditions and domestic uncertainties. It is not being helped by the obvious political uncertainties in a Presidential election year. But most of the rest of world is more worried about maintaining economic growth and warding off deflation than tightening monetary policies. Quantitative easing (QE) is still in place in Japan and Europe, and China is also keeping policy loose. Given these sort of conditions, it may well be that the world (and Asia with it) is in for an extended period of low returns across the markets – fixed interest, equities and commodities – until there is a further economic resurgence. Yet a decent global economic recovery seems a distant prospect, with the US sluggish, Europe still dealing with its own problems (including, now, Brexit), China growth slowing and Japan unable to emerge from its malaise. But it is hard to see any major change in outlook from its last report and that means continuing slow economic and trade growth global and low returns across bonds, equities and commodities. The era of low returns continues.
HONOURING
HONG KONG’S
OUTSTANDING
ICT COMPANIES ENTRIES ARE NOW ACCEPTED
Nominate your most innovative projects to the Hong Kong Business ICT Awards and receive your well-deserved accolade.
For more information, contact Julie Anne Nuñez at +65 3158 1386 ext 221 or email julie@charltonmediamail.com HONG KONG BUSINESS | SEPTEMBER 2016 45
OPINION
tim hamlett
We need some new reasons to visit Hong Kong
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tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism
ow, visitor numbers are down! For some of us, this might come as a relief. There is a limit to how much tourism you can get in a crowded city without making it intolerable for residents. The thing that puzzles me about the people responsible for this is that they go to so much trouble to arrange things which do not appeal to me at all. Cable car to giant Buddha? Disney? Shopping? No thanks. This suggests that the problem with tourism in Hong Kong is that it does not consist in providing things which locals can also enjoy. If you live in London or New York, many of the things which attract tourists are attractions for you too. You may indeed be grateful for the international patronage which keeps some of the more rarefied cultural attractions afloat. In Hong Kong, on the other hand, the government only encourages industries in ways which help the 11 or so families who own most of the place to get even richer. So local interests do not get a look-in. Can the real estate barons make megabucks by attracting mainlanders to expensive handbag shops? Bring it on. Uplifting the tourism industry Under these circumstances the tourism industry seems not so much a part of society as a burden on it. A few people get rich and the rest of us have to run the gauntlet of all those wheeled suitcases full of baby powder. So I have been trying to think of tourist attractions which would be unique, more or less, costless, also more or less, and welcome to people who live here as well as the potential visiting hordes across the boundary. So let me see… Monkeys. If you go to Gibraltar the standard tour (which pretty much everyone does because Gibraltar is a small place) includes a visit to the apes. The apes live wild on the top of the rock. Your guide will take some snacks (raw pasta is acceptable) to ensure that a few apes will turn up. I have never heard of a tourist being molested in any way by an ape but no doubt it happens occasionally. There is a legend (probably copied from the one about the Tower of London’s ravens) that something terrible will happen if the apes disappear. Well the visitors will be disappointed, at least. In Hong Kong, we have a substantial population of wild monkeys and they are treated as an embarrassment. Go to the places where they hang out and you will see only notices begging you not to feed them. One gentleman who had had a bad time with the monkeys actually wrote to a local paper the other week suggesting that they were vermin and should be officially exterminated. Now I realize that some population control is probably required. People in my part of the New Territories occasionally have to shoo monkeys out of their kitchens, which is closer to nature than most of us want to get. But can we not have some sort of monkey/human interaction experience which can be flogged as a 46 HONG KONG BUSINESS | SEPTEMBER 2016
humane alternative to those mainland zoos where you can throw a live chicken into the tiger pen? Water sports. If you walk along the edge of Tolo Harbour — and our town planners have been generous in providing places where you can do this — you may notice one thing is missing. There are mountains, there is water in large quantities. But even on public holidays there are no boats. Go to European cities with lakes or rivers and these are regarded as important recreational resources. In England, where many people are perhaps a bit nutty about boating. Swiss lakes have beautiful antiquated paddle steamers. Even the ornamental lakes at the Palace of Versailles have rowing boats. Sussex villages where the sea is only navigable for a few hours around high tide have public slipways for boat launches. And we have Tolo Harbour, a huge sheltered enclosure with nice scenery and no commercial traffic. And we do practically nothing with it. Hong Kong could be the must-visit location for small boat enthusiasts from all over Asia. Of course we don’t want lots of amateurs floating around Victoria Harbour, which is a busy commercial port. But the only serious boats in Tolo Harbour are resting at anchor between engagements. When I previously complained about this, a reader wrote in to say that while he agreed with the complaint, there was actually a Taipo Boat Club.
Visitor numbers are dipping in Hong Kong
RECOGNISING
HONG KONG’S EXCEPTIONAL
BUSINESS LEADERS AND
PRODUCTS
ENTRIES ARE NOW ACCEPTED Nominate exceptional business leaders and innovative products and receive your well-deserved accolade.
For more information, contact Julie Anne Nuñez at +65 3158 1386 ext 221 or email julie@charltonmediamail.com
OPINION
Hemlock
Overcoming the challenges of Brexit
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ot content with sending the UK and Europe into psychological and economic death spirals, Brexit is apparently wreaking havoc in China and Hong Kong. It means an end to the touching ‘bromance’ between Britain’s David Cameron and China’s Xi Jinping. (People thought at the time that the Conservative government’s bid to be Beijing’s best buddy was a surprisingly cynical and inept political miscalculation. Those were the days…) Plunging UK/European currencies could derail China’s export-based Bl-Brexit-Bromeconomy for good, or disintegration of the Western world will enable the Middle Kingdom to divide and rule the whole planet – we’re not sure which. Hong Kong-focussed companies that nostalgically cling to the former colonial motherland’s apron strings are being hit hard. Prime victims are HSBC, Standard Chartered and our number-one tycoon, Li Kashing, whose UK interests include retail, phone, gas, electricity, ports and other highly original sectors. Vultures see opportunities. Hong Kong’s chief executive, CY Leung mentions cheap real estate in London, while a top guy at Bank of China HK tempts the city with the exciting prospect of gaining at the UK’s expense as an offshore Yuan trading centre. Financial secretary, John Tsang and Monetary Authority chief, Norman Chan talk of caution, prudence and monitoring the situation – honest admissions of cluelessness for which they deserve our respect. Recovering retail sector What, we all wonder, about Hong Kong’s retail/ landlord sector? Could Brexit by any chance cause it to suffer horrible pain as sales, turnover and profits shrivel up into nothing? It is a mouth-watering prospect. An expert tries to put a brave face on the ‘crisis’ the sector is already facing. The executive summary says that top brands need to go back to their original positioning, offering customers a premium experience with high-quality service and exclusive offerings. This suggests that ‘top brands’ at some point started to provide a substandard ‘experience’ and lowquality service (which is apparently different from ‘experience’) and – as the observant among us may have noticed – were all selling the same tedious crap. Disappointingly, it also suggests that the ‘top brands’ sector can reform and survive, when all right-thinking people would rather it just died, and the dust blow away with the wind.
48 HONG KONG BUSINESS | SEPTEMBER 2016
The expert says: It is certainly the most challenging I’ve seen since SARS. But the rents in shopping malls are not decreasing. However, nobody dares to close shops in the luxury space, but it will happen; it must happen. The cartoon character has run off the cliff and is standing there and hasn’t looked down. Yet. “Many of the big brands set out to impress the mainland Chinese, and they rented bigger stores to show they are big brands … this killed the malls and the interest in those places … I would say, reduce store sizes and bring more diversity to malls,” he says. However, we are still not quite getting to the radical and revolutionary stage of ‘selling people stuff they want’. The talk here is all about ‘brands’, which tends to mean overpriced junk. The expert recalls the time 60 years ago when luxury goods were authentic: familymade, high-quality and very limited in supply. Those companies (like LV) – or their names and logos – were bought by conglomerates, who mass-produced the stuff, eventually in China, and relied on marketing to con new-rich Asian suckers into believing the items were desirable and valuable. Now the market is saturated, and even mainlanders are getting tired of the avalanche of tawdry, phony heritage/lifestyle BS. So what’s the way forward? There needs to be an upgrade in the quality of the service … I once purchased a beautiful jacket from a luxury brand, and the salesperson asked me if I wanted to pay an extra 50 cents for a bag. I thought, “It’s raining outside, of course I want a bag. Charge me HK$500 more, I don’t care! If you go into a luxury shop, you should be treated as a luxury client. This is important.” How to overcome Brexit: charge people HK$500 for a bag.
by hemlock www.biglychee.com Email: hemlock@hellokitty.com
Hong Kong’s retail is on the verge of a meltdown
50 HONG KONG BUSINESS | SEPTEMBER 2016