According to the February 27, 2014 excerpts obtained from the on the online portal of Asianinvestor.net, the Hong Kong government has announced a variety of incentives intended to boost up its fund management industry, increase the volume and liquidity for fund transactions, paving the way for greater investor participation in the domestic markets. Hong Kong’s Finance Secretary, Mr. John Tsang, announced the new set of incentives on February 26, 2014 as part of the overall annual Budget 2014 package.
The Feb 27 Asianinvestor.net article reported that the Hong Kong government intends to extend the waiver of the stamp duty levied on the territory’s fund management industry, which was first introduced since 2010, for some exchange-traded funds (ETFs) listed in Hong Kong. The 2010 waiver was set at 0.1 percent stamp duty per ETF trade done for both buyer and seller for all such products, and with this extension of this stamp duty waiver, it is expected to boost the volume and liquidity of many ETF products being traded, particularly among institutional investors seeking to tap into growth opportunities in Asia and beyond. The waiver also comes with a requirement that Assets under Management (AUM) size for firms that seek to maximise the tax benefits under this waiver scheme must have more than 40.0 percent of their fund holdings in the domestic Hong Kong equities market. The requirement is intended to entice both local and foreign fund companies to set up shops in Hong Kong, while also tapping into the domestic and Greater China regions for investment opportunities.
Increasingly, according to investment bank, Deutsche Bank (DB), the number of ETFs listed in Hong Kong has nearly doubled to 128 by mid February 2014, up from 69 in 2010. The daily average turnover transactions volume has increased to USD 3.7 billion from USD 2.4 billion between 2010 and 2013. The total ETF AUM in Hong Kong was last stood at USD 33.6 billion as of February 14, making it the second largest market in Asia, with Japan at USD 77.6 billion, and China at USD 24.6 billion.
On the other end of the rivalry, the fund management industry in Singapore has risen exponentially since 2002 to SGD 1.34 trillion, and the number of investment professionals working in this field has tripled to 3,052. This is according to excerpts obtained from a Singapore Budget 2013 roundup commentaries published by Mr. Desmond Teo, and Ms. Chia Jing Wen, who were Partner and Manager, respectively for the Financial Services Tax division at Enrst & Young (EY) Solutions LLP. Their comments were first published in the local Business Times newspapers on January 22, 2013. Although the article was dated in January 2013, it does hold some relevance as to the significance expressed by many Asian country governments, including Hong Kong and Singapore to show assertiveness and competition in trying to woo foreign fund management companies to set up shops in the respective countries.
According to the 2013 EY commentary, from January 01, 2014, all foreign financial institutions (FFI), including investment funds, are required to comply with the regulations that come under the US Foreign Account Tax Compliance Act (FATCA), and the US Department of Treasury, through the Internal Revenue Service (IRS), will be charged in overseeing the strict compliance of FATCA, among foreign financial institutions, and investment funds. The new regulations being introduced by the United States government are intended to beef up risk management practices among financial institutions, and fund companies. It is thought that this move could go in a long way in recognising risk managers and chief operating officers (COO) as investment professionals under the Financial Sector Incentive – Fund Management tax incentive as well as those fund managers seeking to benefit from the Enhanced Tier tax exemption, that will be helpful in lessen the hiring cost burdens, especially with the tightened regulations governing the hiring of foreign employees in Singapore recently.
However, the Budget 2013 announcement did not provide any clear language as to how to entice Singapore-based fund managers to continue to manage their private banking clients’ wealth, when there is no tax exemption for gains and losses from assets managed by these group of domestic domiciled fund managers on behalf of their clients. The Singapore-based fund managers are also not qualified for the current family-owned investment company tax exemption, although they are still qualified to enjoy a variety of other investment income. The lack of such incentives under the Singapore Budget 2013 package may encourage Singapore-based investors to seek for investment opportunities with much lower tax burdens as foreign-sourced incomes may be exempted from the Singapore tax authorities.
In summary, the Hong Kong government has recognised the concerns expressed by many investment professionals who are increasingly trying to raise their individual fund holdings’ profiles among investors. Although China might be slowing down in terms of economic growth momentum, but there are still a variety of regions, particularly those in the inner cities of China that holds plenty of investment opportunities for fund management companies to tap into. But, Singapore does have many challenges ahead if it does not step up its rhetoric of wooing its locally-based fund managers to participate actively in the financial services industry, most notably when it comes to the tax differences among both countries, and the level of market participation, that will help to boost the liquidity and transaction volumes.