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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Asia Private Equity Forum 2016 this morning (January 20):
Thank you very much, Eric (Chairman of Hong Kong Venture Capital and Private Equity Association, Mr Eric Mason). Ladies and gentlemen,
Good morning. I am glad that you are all here.
It is my great pleasure to join you all again today. And by "again", as Eric has mentioned, I mean for the fifth straight year. So a "high five" to that, and to the Hong Kong Venture Capital and Private Equity Association, for so graciously including me once again in this important annual conference.
For most of you in the asset management business, I believe that you are quite familiar with the so-called theory of "January Barometer", which states that if the stock market goes up in January, then we can expect that the stock prices will rise as well during the year. Or simply put, "As goes January, so goes the year".
Whether or not this notion is proven by historical data, I believe none of you here would like this barometer to be accurate this time round, judging from the brutal volatilities that we have seen in the stock and commodities markets worldwide in the first two trading weeks in 2016, amid grave concerns over the lacklustre global economic growth, as well as oil prices falling to horrendous level.
And as a small but highly externally oriented market, Hong Kong has always been sensitive to external turbulences. But while the global financial markets struggled in the past two weeks, the markets here in Hong Kong have been able to trade and to operate in an orderly and smooth manner. This demonstration of stability and grace once again revealed the resilience and robustness of Hong Kong's system that we have so painstakingly built over the years, with lessons learnt and experience gained from previous crises and giant storms that we have been able to weather.
The latest IMF Article IV Consultation Staff Report has summarised succinctly our strength in its published conclusion that, I quote, the Hong Kong Government's prudent fiscal management and robust regulatory regime for the financial system, together with the Linked Exchange Rate System between the Hong Kong dollar and US dollar, would provide Hong Kong with strong buffers to deal with near-term challenges, while laying the foundations for steady growth and healthy job creation in the medium term, end of quote.
As we continue to consolidate Hong Kong's competitive advantages and maintain the strength in our systems, we are striving to expand the depth, as well as the scope of our financial services and offer more investment opportunities for those involved in asset and wealth management worldwide.
We are aiming to create even greater demand for asset management, investment and advisory services here in Hong Kong, which I believe would in turn drive up the demand for business consulting, tax, accounting, legal and other professional services as well. The entire business community would stand to benefit from this expansion exercise.
Which is why, offshore private-equity funds in eligible offshore private companies have been exempt from Hong Kong profits tax since last July. Both Hong Kong and special-purpose vehicles incorporated offshore are also exempt from tax for profits derived from certain transactions.
With this clear tax exemption, private-equity managers can now simplify their operations and expand their asset-management activities here in Hong Kong. With that, we hope more private-equity managers will be attracted to set up or enhance their business here, using Hong Kong as the location to hold investments in the Mainland and elsewhere.
This tax initiative is just one of the many measures that we have developed to consolidate Hong Kong's strength as a full-service asset-management hub.
We need to provide the right tools in order to help enhance the ability of our fund managers to tap the huge savings pool in the Mainland, if we are to strengthen Hong Kong's status as a premier international asset-management centre. So rest assured, we are making that a priority of ours.
The mutual recognition of funds arrangement between the Mainland and Hong Kong became operational last July. It allows qualified funds in the Mainland and Hong Kong to be offered directly to the public in each other's markets. The first batch of southbound funds is already available to Hong Kong investors, and we expect more funds will be launched soon in these markets.
The arrangement will help broaden the investment channels in Hong Kong. And certainly, the Mainland's diverse pool of public funds will have strong appeal to investors from Hong Kong and around the world. Many asset managers are already strengthening their Hong Kong operations, establishing distribution networks and getting familiar with Mainland market conditions.
The arrangement will also help promote the internationalisation of the Renminbi, reinforcing Hong Kong's position as the pre-eminent offshore centre. And the additional pool of Renminbi-denominated investment products in Hong Kong will extend our product offerings as well.
We are also taking forward a legislative proposal allowing investment funds to take the form of an open-ended fund company in addition to the unit trust format that we have now. We believe that the added flexibility will attract even more funds to domicile in Hong Kong.
These, and other measures, are part of our ongoing efforts to expand business opportunities for the asset management and venture capital industry in Hong Kong. And our efforts are indeed bearing fruit that I'm pleased to note. Between 2010 and the end of 2014, the combined fund-management business in Hong Kong expanded by about 75 per cent, from some HK$10 trillion to a record high of HK$17.7 trillion.
A thriving asset-management industry is also good news for private-equity funds. At the end of September 2015, total capital under management of private-equity funds in Hong Kong reached US$117 billion. This represents about 20 per cent of total capital under management by private equity funds managed in Asia.
Hong Kong is home to some 410 private-equity firms. Among the top 50 global private equity firms, 21 maintain a presence here in Hong Kong as of 2014. In short, Hong Kong remains Asia's most important centre for private equity.
The Stock Exchange of Hong Kong is an attractive IPO destination for private equity-backed companies. The amount of capital raised for new investment by Hong Kong-based private equity firms over the past three years is equivalent to two-thirds of the capital raised by IPOs on the Hong Kong Exchange over the same period.
The Shanghai-Hong Kong Stock Connect, in place now for some 14 months, has certainly reinforced Hong Kong's attractiveness as an IPO exit for private equity managers. Under the Stock Connect arrangement, in case you don't know, Mainland investors can trade their shares directly on the Stock Exchange here in Hong Kong, and vice versa.
So ladies and gentlemen, the Chinese New Year is just around the corner. And I reckon that the coming Year of the Monkey should be an excellent year for business. Never mind the monkey business jokes that will inevitably be thrown around. Just focus on the plentiful opportunities that are available right here in our neighbourhood. So the active and energetic nature of the monkey will guide the way in the coming year.
And to that - to all of you here - I can only add my best new year wishes for a prosperous New Year.
Thank you very much. Have a great day.
Ends/Wednesday, January 20, 2016
Issued at HKT 12:08
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