With very low labour taxes, social contributions and other employment regulations, Hong Kong is an attractive investment destination for many of our clients. Its growing workforce supplies cheap and flexible labour, complemented by the rapid expansion of its university-educated labour force. Supply chains benefit from an extensive and high quality transport network which offers excellent connections to global trade routes. That said, Hong Kong faces significant challenges from mainland China.
We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. They also benefit from in-depth analysis on 18 of Hong Kong’s most important industries. We provide interactive data and forecasting, alongside detailed and risk-assessed analysis from our experts. We aim to keep you one step ahead, so you can operate with confidence in Hong Kong.
Hong Kong Country Risk
Hong Kong's economic narrowly beat consensus expectations in Q315 despite myriad domestic and external drags on growth. However, the 2.3% print confirms our expectations for the city-state's economic growth to cool in line with a stumbling mainland economy, and corroborates our full-year real GDP growth forecast of 2.5% for 2015. Tepid external conditions and the rising propensity for a domestic property price correction will continue to weigh on the economy in 2016, and we have therefore marginally downgraded our real GDP forecast to 2.3% for 2016, from 2.5% previously.
Hong Kong's residential property market is at a tipping point, and a correction appears ready to take hold in 2016 as supply constraints fade and interest rates rise. At the same time, affordability is extremely...
Hong Kong Operational Risk Coverage (9)
Hong Kong Operational Risk
Hong Kong Operational Risk
BMI View: Investors in Hong Kong stand to benefit from the country's modern and highly reliable logistics network. As a major regional and global trade hub, Hong Kong has invested heavily in its transport network, developing a range of supply chain options across road, rail, air and maritime connections. The country's utilities infrastructure is similarly advanced and there is therefore very little risk to businesses in terms of interruptions to supply. Reliability does come at a cost, however, and fuel and electricity prices are among the highest regionally. Overall this does little to dampen Hong Kong's appeal and the country is ranked a positive fifth out of the 38 Asia region states for Logistics Risk, with a score of 77.2 out of 100....
Hong Kong Crime & Security
Hong Kong Crime & Security
Overall, crime and security risks for investors and businesses in Hong Kong are very low with regards to all types of risks (crime, terrorism, interstate conflict) due to low crime rates, the absence of domestic terror groups/attacks and an effective security/counter-terrorism apparatus, as well as a secure neighbourhood under the security patronage of military heavyweight China. Thus we have awarded Hong Kong a total score of 90.9 out of 100 in our Crime and Security Index, ranking Hong Kong among the most secure countries/territories in the world, six places behind global leader Slovenia, outperforming all other regional peers in Asia.
In comparison, the greatest risks for companies and the general public in Hong Kong relate to the global terrorism threat that affects Hong Kong as global financial hub and capitalist engine of China. Terrorism threats in China are related to the Muslim Uighur minority in the north-western region of Xinjiang...
Hong Kong Labour Market
Hong Kong Labour Market
BMI View: Hong Kong offers businesses a highly flexible and low-cost work force, with a high minimum wage offset by low labour and social tax contributions. A relatively large domestic labour force alongside a steady supply of migrant workers from mainland China and other Asian states helps to ensure labour availability, as does Hong Kong's near total urbanisation. Investors may however face a shortage in terms of skilled labour which detracts somewhat from the country's score in this section. Overall, however, Hong Kong's labour market is competitive and the country has a score of 72.0 out of 100 for Labour Market Risks, placing the country third in the Asia region behind New Zealand and Singapore and sixth on a global basis.
Almost 75% of Hong Kong's workforce has a...
Hong Kong Logistics
Hong Kong Logistics
Hong Kong is a clear outperformer with regard to Logistics Risks. Its very well-developed transport system with top-rated road, rail, port and airport infrastructure, its easy trade procedures and strong governance leading to extremely low import and export lead times and documentation as well as high freight capacities by sea and air combine to put it in first place out of 30 countries in the region and in second globally after the Netherlands. The only category in which Hong Kong scores comparatively poorly is Market Size and Utilities, since Hong Kong has no natural resources of its own and is thus forced to import resources.
The Transport Network in Hong Kong is very sophisticated, ranking in third place regionally and in 16 th position out of 170 countries in the world, which is many places in front of mainland China. The need to develop very smart and efficient transport infrastructure, both in terms of extent and quality,...
Hong Kong Trade & Investment
Hong Kong Trade & Investment
Hong Kong presents minimal trade and investment risks owing to its relatively open economy and attractive foreign investment policy. Specifically, investors are exposed to reduced costs due to a transparent legal system, limited corruption and strong contract enforceability. These risks are further mitigated by favourable tax rates and attractive financial incentives. Overall, Hong Kong is the regional outperformer in the BMI Trade and Investment Risk Index with a score of 82.4 out of 100, outperforming fellow financial hub Singapore, which places second in the Asian rankings.
Hong Kong is an open country for economic activity due to its market-oriented economy and superior financial market development. The government offers financial incentives for foreign investors in the shape of tax breaks, and government assistance, which boosts its attractiveness. In addition, foreign entities are able to access credit in Hong...
Hong Kong Industry Coverage (17)
Hong Kong Autos
BMI View: A slowdown in economic growth and weak consumer sentiment will lead to subdued growth in passenger vehicle sales over our forecast period 2016-2019, with average growth of 1.9% over this period.
|Weak Econony Dampening Passenger Vehicle Sales|
|Passenger Vehicle Sales,Units|
|e/f = BMI estimate/forecast. Source: HKDT, BMI|
|* Weak economic outlook...|
Hong Kong Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Hong Kong Consumer Electronics
BMI View: We already held a negative outlook for Hong Kong's consumer electronics market in 2015 due to diminished growth prospects and unfavourable product proliferation cycles converging, but this was exacerbated by economic uncertainty and declining spending from visitors combining for an 8% decline in spending. The medium-term outlook is brighter as the tablet, notebook, TV set and digital camera markets stabilise; however, growth opportunities will still be limited due to saturation. Vendors will need to focus on upgrade/replacement sales, a...
Food & Drink
Hong Kong Food & Drink
BMI View: We forecast private consumption growth to slow down in 2016, due to mounting economic headwinds, especially the slowdown in China. Combined with a small and ageing population and existing high levels of food consumption, we expect only moderate growth in food and drink sales throughout our forecast period to 2019.
Headline Industry Data
Total food consumption (local currency) growth in 2015: +4.4%; forecast compound annual growth rate (CAGR) 2014-2019: +3.7%.
Alcoholic drinks value (local currency sales growth in 2015: +3.4%; forecast CAGR 2014-2019: +3.9%.
Mass grocery retail sales (local currency) growth in 2015: +3.0%; forecast CAGR 2014-2019: +2.7%.
Hong Kong Freight Transport
BMI View: We forecast modest but nonetheless positive growth for Hong Kong's freight sector in 2016 and beyond. The current slowdown in the Chinese economy is affecting trade flows in Hong Kong, hurting the economy and consequently impacting all freight modes in the city state owing to its dependence on trade with China. Due to the developed nature of the freight sector in Hong Kong, and with a forecasted downturn in demand for goods over the medium term, we expect growth to be robust, but subdued for all freight modes.
GDP growth is forecasted at 3.5% for 2016 and to steadily increase over the medium term at an annual average of 3.5%. However, Hong Kong's economy is...
Hong Kong Information Technology
BMI View: After a sharp decline in hardware spending dragged down Hong Kong's IT market in 2015 we forecast a much more stable outlook over the medium term, with a CAGR of 5.3% forecast for 2016-2019 to a total of HKD45.76bn. The volatility in the hardware market was the result of the boom and subsequent slowdown in the tablet market, as well as concentrated desktop and notebook replacement demand in 2014, but 2016-2019 dynamics will be more stable and based on income growth and replacement spending. Meanwhile, the lucrative enterprise software and services markets will continue to outperform retail spending and Hong Kong's position as a regional datacentre and cloud services hub will sustain growth rates above those observed...
Hong Kong Infrastructure
BMI View: The long term outlook for Hong Kong's construction sector remains muted, with a structural slowdown in China, a more challenging business environment, as well as shortage of labour weighing on growth. Public construction works which were previously delayed and an increase in expenditure on public housing will offer some reprieve.
Latest Updates And Structural Trends
We maintain our conservative outlook for Hong Kong's construction sector and forecast the sector to expand by an annual average of 2.8% in real terms between 2015 and 2020.
The long-term fundamentals for Hong Kong's infrastructure sector remains unfavourable, with growth being weighed by a deteriorating business environment, as indicated by the recent World Bank Doing Business 2016 report.
Hong Kong Insurance
BMI View: Hong Kong's enormous life insurance segment is sophisticated and dynamic. All major trends - including the insurers' own ability to develop and distribute attractive new products - are favourable. In the non-life segment, growth will likely be driven by the expansion of the accident & health insurance sub-sector.
Hong Kong Medical Devices
BMI View: Steady growth in Hong Kong's medical device market will continue with a US dollar CAGR of 7.4%, ranging from 6.0% for other medical devices to 10.3% for patient aids. This is in line with growth over the previous five-year period and reflects current budgeted health expenditure. We believe growth will be driven by Hong Kong's aging population and continued investment in the health sector, which will be boosted by increased private sector involvement.
|Total (USDmn)||Per Capita (USD)||Total (Local Currency mn)||...|
Oil & Gas
Hong Kong Oil & Gas
BMI View: With no domestic energy resources, Hong Kong will be required to meet growing oil and gas demand through imports alone. As a positive development for the market, the decline in crude and refined product prices and the weaker oil price environment over our forecast period will see Hong Kong's net oil import bill substantially reduced over the short and medium term. While Hong Kong can ostensibly fall back on China in order to fulfil its energy needs, there is some resistance to an overreliance on its parent state from both private and public entities. Still, as Hong Kong becomes increasingly politically intertwined with Beijing, so too will its energy policy. The city-state is increasingly likely to turn to the mainland to achieve its goal of...
Pharmaceuticals & Healthcare
Hong Kong Pharmaceuticals & Healthcare
BMI View: Regulatory delays will impinge upon the access that drugmakers have to Hong Kong's pharmaceutical market. With a drug approval time of more than 18 months, the administrative region lags behind peers such as Singapore where full evaluation takes approximately nine months. Additionally, as healthcare costs escalate, getting listed on Hong Kong's formulary will become increasing challenging, especially for high-value treatments, giving rise to risk sharing arrangements.
Headline Expenditure Projections
Pharmaceuticals: HKD12.07bn (USD1.56bn) in 2014 to HKD12.95bn (USD1.67bn) in 2015; +7.3% in local currency and 7.0% US dollars terms. Forecast unchanged from previous quarter.
Hong Kong Power
BMI View: Hong Kong remains heavily dependent on thermal energy, with coal accounting for approximately 65.5% of the city-state's energy production as of 2014. Although the government is actively researching renewable energy solutions to curb this dependency, it is most likely Hong Kong will become increasingly reliant on mainland China and imported natural gas over the medium term.
BMI forecasts Hong Kong's real GDP growth will average 3.6% a year between 2015-2024, with an increase of 2.7% estimated for 2015. BMI is forecasting an average annual increase in total electricity consumption of 1.8% to 46.12TWh between 2015-2019. Thermal generation, comprising coal, gas and oil, is expected to grow by an average of 2.2% per annum over the same...
Hong Kong Real Estate
BMI View: The office sector continues to offer the most promise regarding rentals, as Grade A establishments remain in high demand and lack of available space is pushing upward trend. Industrial real estate also represents a potential area for investment as the limited space, good demand and inauguration of national 'reindustrialisation' looks to offer opportunities in the mid-term. We opine that Retail will witness further contractions and advise vigilance when considering this market over the same period.
We have revised our economic forecast for growth in Hong Kong with real GDP to remain steady at 2.5% over 2016, no change from 2015, as the regional pressures, predominantly stemming from fiscal reforms and corrections in China, Hong Kong's largest trade partner, weigh-in on demand into the Asian Tiger economy. A main culprit that has subdued interest is the strong...
Hong Kong Retail
BMI View: Hong Kong's retail sector has been facing headwinds over the recent quarters owing to declining tourist and spending figures from mainland China. Although we expect this negative trend to persist in the near term, we forecast 2016 headline household spending to increase 6.6% y-o-y supported by stronger domestic consumption and rising levels of disposable income.
|Headline Household Spending|
|e/f = BMI estimate/forecast. Source: Hong Kong Census...|
Hong Kong Telecommunications
BMI View: A decline in total mobile subscribers is attributable to high market saturation, which cannot sustain further growth in light of Hong Kong's slowing economic growth. Operators are deriving growth by migrating subscribers on to greater revenue-generating networks such as LTE. In addition, the potential for postpaid subscribers to outnumber prepaid ones will remove some subscriber number volatility and reduce churn rates for operators in the longer term. This change in the mobile landscape will also buoy average revenues per user (ARPU).
|Operators Combat Market Saturation With LTE|
|Hong Kong Mobile Market Forecasts|
Hong Kong Tourism
Hong Kong Water
BMI View: Hong Kong is a reasonably attractive market, with customers concentrated in a densely populated area that is well served by existing water infrastructure. Mains domestic consumers represent the larger user base. While we expect this trend to continue, water conservation campaigns are being launched by the government to bring consumption down. We believe this will have an effect on water consumption habits of domestic consumers in particular, and relieve some of the city-state's burden. However, we expect that as the country's water-consuming industries maintain their momentous growth, demand for water will continue to increase.
Latest Updates And Key Forecasts
Hong Kong plans a desalination project worth HKD9.3bn (USD1.19bn) to meet water...