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Hong Kong has been a bastion of international trade and investment since independence in July 1997. Since then, Hong Kong has received ever-growing attention from international investors and businessmen from different parts of the world. Despite numerous setbacks and recessions at the time of the Asian financial crisis as well as the global economic downturn of 2008, Hong Kong has emerged as one of the leading global investment and business hotspots, known for its liberal and low taxation as well as numerous free trade agreements, which Hong Kong is known for makes many entrepreneurs a desirable destination.
Below we provide a detailed overview of Hong Kong's economy and business environment, some opportunities that allow global investors to gain access to the local market, as well as some quite relevant risk factors that must be considered at all times.
Hong Kong and the liberal free market economy Hong Kong is often described as one of the world's greatest experiments in laissez-faire capitalism, but some new regulations have been introduced since it all began. Despite legal upgrades and recent requirements, Hong Kong is still ranked as one of the freest countries in the world based on the Index of Economic Freedom for every year since 1995 - even before it actually achieved independence. The country is now home to the seventh largest stock exchange in the world, the largest IPO market in the world and one of the densest concentrations of corporate offices and headquarters in Asia Pacific. Even more surprising is the fact that more than 8% of Hong Kong households have net worth greater than $1 million.
Based on the 2012 Wealth Report by Knight Frank Research and Citi Private Bank, Hong Kong will become the second largest economy in the world in terms of GDP per capita by early 2050. Just for comparison, the United States is predicted to be fifth on the list after four largest Asian economies.
Invest in Hong Kong with ETFs One of the easiest ways for global investors to gain exposure to Hong Kong's securities is through exchange-traded funds, also known as ETFs, which provide quick diversification in a security that's traded on various international stock exchanges.
One of the most widely used Hong Kong ETFs is the iShares MSCI Hong Kong Index Fund (NYSE: EWH) with $2.7 billion in net assets and 43 total holdings.
Some other known ADRs in Hong Kong are:
AIA Group Ltd. (OTC: AAGIY) Sun Hung Kai Properties Limited (OTC: SUHJY) Hutchison Whampoa Ltd. (OTC: HUWHY) Benefits and Risks of Investing in Hong Kong Hong Kong offers numerous advantages as well as some risks directly related to investments that need to be carefully evaluated and monitored. While Hong Kong clearly represents an attractive business and investment destination, there are several risk factors that could make it a rather risky investment destination during the financial crisis.
The benefits of investing in Hong Kong include:
Leading World Economy. Hong Kong is one of the freest states in terms of economy and taxes and perhaps one of the most important global financial centers. Proximity to Asian growth. Some of the world's largest developing economies will be located in Asia, giving Hong Kong a strong geographic advantage. The risks of investing in Hong Kong include:
geopolitical risks. Hong Kong's ties and proximity to China make it a potential subject of geopolitical issues and disputes, given that many business leaders are Chinese. risk concentration. Hong Kong's economy is heavily dependent on its financial sector, which puts it at great risk during economic recessions. Things to keep in mind when dealing with Hong Kong:
Hong Kong was a bastion of capitalism in one of the fastest growing regions in the world, making it a coveted number one destination for international businessmen. The quickest way to get exposure to Hong Kong is through ETFs. Investors should carefully consider all potential risks associated with Hong Kong before investing capital, particularly geopolitical risks and lack of diversification.