Age of Asia: What Will Drive Capital in Asia Over the Next Decades?
May 20, 2022
15 mins

This year’s World Economy Forum (WEF) meeting has a special meaning given the two-year hiatus caused by Covid-19. At HKEX, we are proud to be a global superconnector, and as such, it feels particularly special to connect with friends from across the world in person this year.

As we look ahead, it is increasingly evident that there are incredible opportunities emerging in Asia and Hong Kong has a unique role to play in fostering these opportunities.

The Rise of Asia
 

Taking a step back, the axis of the world economy has increasingly shifted towards Asia in recent years, with the region’s share of global GDP growing to 42% in 2021 on the back of relocating manufacturing hubs, innovation across commerce and rising foreign investment. 

Similarly, Asia’s capital markets have grown significantly, reaching a total market capitalisation of US$39 trillion at the end of 2021. This growth has been especially strong since the Global Financial Crisis of 2008, when international investors have increasingly shifted their focus to emerging markets and the East for opportunities. 

In recent years, Asia has showed its economic resilience amid COVID-19, with green shoots of post-pandemic recovery appearing across the region, ahead of much of the rest of the world. While the pandemic is not yet over, we remain excited about the opportunities emerging, and as many before me have forecast I believe ‘the century ahead belongs to Asia’. 

 
Hong Kong’s Role

As the largest and most vibrant international financial hub in Asia, Hong Kong has helped drive the significant growth we have seen across the region facilitating the two-way capital flows between East and West.

Despite COVID-19 and geopolitical tensions, Hong Kong’s financial markets have remained robust and resilient – recording some of the best volumes ever.

For instance, average daily turnover reached HK$166.7 billion in 2021, up 91.2% compared with 2019.

Looking ahead, I am convinced that Hong Kong will continue to play a major role in Asian and global markets, connecting ideas and opportunities and driving the post-pandemic recovery – and HKEX is central to that journey ahead.

So what are the opportunities we see in the region?

 


Opportunities in China

China’s burgeoning economy will continue to create sizeable opportunities. Its onshore equity and bond markets are expected to grow past U$100 trillion over the next decade or so, and it currently remains under-invested globally, with only 5% of the A-share market owned by international investors.

In this context, as the most international city in China and the most Chinese city outside of the Mainland, Hong Kong’s role as a financial superconnector is going to be more relevant than ever.

Our pioneering Connect schemes – allowing global investors to invest in the China A-share market and Chinese investors to access Hong Kong’s markets – have reinforced our position as China’s offshore trading, clearing and risk management hub.

 

Note: Average daily Northbound trading value refers to trading on both the Hong Kong-Shanghai and Hong Kong-Shenzhen Northbound Stock Connect channels

 


Hong Kong’s role as a financial superconnector is going to be more relevant than ever.
The Greater Bay Area

Across China, we see huge potential for growth in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). With a population of 86 million people and GDP of nearly US$2 trillion – equivalent to that of South Korea – we believe the GBA represents rich untapped opportunity.

Dubbed as ‘China’s Silicon Valley’ with some of the world’s fastest-growing companies, the GBA is China’s innovation powerhouse. And as the GBA’s international financial centre, Hong Kong will have a key role to play in supporting its capital raising, offshore RMB, risk management and sustainable finance needs.

 


Technology and Innovation

Asia has emerged as perhaps the globe’s greatest innovation driver, with more than half of the world’s 100 most innovative organisations coming from the region, according to Clarivate.

Uninhibited by legacy structures and with a fast-growing educated workforce and momentum behind it, Asia is changing the way we live, consume, work and interact. 

Capital markets form a significant part of this innovation journey, fuelling the new ideas and ambitions of the future. 

Typically found in sectors such as biotechnology, internet services, fintech, electric vehicles, new media, green tech and clean tech, new economy companies are the companies of tomorrow and at HKEX, we see it as our mission to help them thrive. 

That is why we launched a series of listing reforms in 2018, changing the DNA of our markets and attracting 195 new economy company listings since the reforms came in. 

 

Sustainability

The next significant opportunity defining our global landscape is sustainability and – specifically for us – sustainable finance. Asian countries are making substantial policy commitments in this regard, presenting a great entry point for investors.

Taking China as an example, in the next 15 years, China will need over US$20 trillion of investment to deliver on its sustainability goals.

Here, HKEX is leading the charge to create a sustainable finance ecosystem – driving the investments needed for the low-carbon transition, supporting the transparency and standardisation needed around ESG data and disclosures, and advocating for collective change.

Our partnerships with the Guangzhou Futures Exchanges as well as the Guangdong-based China Emissions Exchange to explore carbon markets and carbon financing are some of the good examples of this in action, and the opportunities emerging as a result of the drive on ESG.

 

 

Our Journey Ahead
 

Looking ahead, we are excited by what we think are the incredible opportunities across the region.

I am confident that Asia will continue to be the world’s growth engine – with China front and central – and that Hong Kong, and HKEX, will play a vital role in the journey ahead as a global superconnector.