Gulf investments into Hong Kong and GBA set to rise, especially in fintech
Hong Kong and the Greater Bay Area (GBA) can expect to see substantial growth in investment inflows from Saudi Arabia and its oil-rich neighbours, a top Bahrain-based fund manager has predicted.
Sovereign wealth funds from Saudi Arabia and the United Arab Emirates will establish US dollar-denominated Hong Kong-based funds to channel their investments into the GBA, the rest of China and the broader Asia-Pacific, according to Hazem Ben-Gacem, the co-CEO of Investcorp, a Bahrain-based alternative investment management firm with assets of more than US$41 billion.
The Middle East's two richest economies are on the lookout for minority stakes in medium-sized corporations, while their investment targets will include joint ventures with major conglomerates based in the GBA.
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"In the coming years, we anticipate seeing increasing flows of capital, resources, talents and technology between China and Saudi Arabia, but also the Middle East in general," Ben-Gacem told This Week in Asia. "Hong Kong will play a pivotal role in ensuring reliable financial infrastructure and global operating standards to support these engaging activities."
As Asia's prime asset and wealth management centre and the largest hedge fund centre in the region, Hong Kong could be particularly "interesting" for Saudi Arabia, in terms of fintech investment and setting up family offices, Ben-Gacem said.
Investcorp worked with the Hong Kong government to facilitate the visit to Bahrain and Saudi Arabia by Finance Secretary Paul Chan and his investment-seeking delegation.
Chan was accompanied by deputy chief executive of Hong Kong Monetary Authority Howard Lee, and a group of influential business leaders including the chairwoman of the Hong Kong stock exchange, Laura May-Lung Cha, and chairman of the 115-year-old Fung Group, Victor Fung.
After talks in Bahrain, Investcorp and the Fung Group on October 25 announced they were looking to establish a US$500-million private equity fund that is expected to operate out of Hong Kong and focus on investing in growing companies in the GBA.
Ben-Gacem said Investcorp was seeking to "capture investment opportunities that others cannot easily access" and to leverage the Fung Group's knowledge, resources and capabilities in logistics and trade "to turn these GBA companies we invest in into much larger global players".
The Fung-Investcorp announcement came within hours of the unveiling of a "strategic alliance" between Mubadala Investment, a UAE sovereign wealth fund, and New York-based KKR Credit, which aims to invest "at least" US$1 billion in long-term capital on providing "credit solutions to companies and sponsors" in the Asia-Pacific region.
Robert Mogielnicki, a senior resident fellow at the Arab Gulf States Institute in Washington, noted that Saudi Arabia had "solid ties with Asian countries", so it did not necessarily need Hong Kong to function as a gateway to Asian markets.
"However, stronger commercial ties with Hong Kong will serve to expand Saudi linkages to key commercial networks and markets in Asia," he said.
Saudi Arabia's sovereign wealth fund, the Public Investment Fund, is an "investment powerhouse and likely to serve as a conduit for joint investment initiatives", said Mogielnicki.
Fintech is a high-priority area for Bahrain and Saudi Arabia, he said, which gives officials from Hong Kong "lots to discuss with their Gulf counterparts". There was significant interest in esports and cryptocurrencies in Gulf countries like Bahrain, Saudi Arabia and the UAE, he added.
Ben Gacem said as the Gulf's gaming powerhouse, Saudi Arabia "will be looking for opportunities across the GBA, particularly to connect with Shenzhen" as China's leading technology and innovation hub, and by extension with tech giants like Tencent and ByteDance.
"The synergies between Shenzhen and Hong Kong in driving e-gaming consumption and innovation create big potential for partnerships with Saudi Arabia," Ben-Gacem said.
Another potential partnership area could be setting up cryptocurrency exchange platforms, while mutual regulations and frameworks are in gestation, he said.
Bahrain and the UAE are the first Gulf nations to develop the cryptocurrency market. Like Hong Kong, their central banks have issued guidelines and frameworks for a range of cryptocurrency-related activities to facilitate fintech growth.
"A similar offshoring role could work for both Bahrain in the Gulf region and Hong Kong for the Renminbi internationalisation," Ben-Gacem said.
Likewise, the three Gulf states are focused on investing in emerging blockchain and Web 3.0 technologies - areas that Hong Kong has a lot of experience in because China is one of the pioneers globally in digital currency application and cybersecurity, he said.
On the other hand, Saudi Arabia has launched an ambitious logistics strategy intended to position the country as a global hub.
"This will give firms and investors in Hong Kong lots of opportunities to consider," said Mogielnicki of the Arab Gulf States Institute in Washington.
Ben-Gacem said the GBA's efficient and complex infrastructure model could be replicated in Saudi Arabia and other parts of the Middle East to "drive sustainable growth for our region".
This article originally appeared on the South China Morning Post (SCMP).
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