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This Development in Hong Kong Might Be a Boon for Singapore’s Banks

Banks

This week, pro-democracy protests took place in Hong Kong after the Chinese government tried to change the city’s election process.

China’s mainland central government announced that all future top leaders of Hong Kong would need to be approved by a nominating panel, which is likely to be made up of members loyal to the Chinese government. This led to a protest by some of Hong Kong’s residents, who fear that their democratic system is under threat.

The future of Hong Kong

For many years, Hong Kong had been an economic gateway into China, even before the territory returned to Chinese rule in 1997.

Hong Kong serves as a financial hub for investors trying to enter China as well as for Chinese investors who want to invest outside of China. That role has propelled it into being the wealth capital of Asia.

However, as China continues to open up its economy, there might be a possibility that Hong Kong’s importance as a conduit for economic transactions between China and the rest of the world would diminish. To that point, China is already experimenting with an open economy through the Shanghai Free Trade Zone.

In addition, part of Hong Kong’s appeal to investors, apart from its geographical proximity to China, has been its relative independence from the country’s political system. Now with the Chinese government planning to increase its influence in the city, Hong Kong’s attractiveness to investors might just come under further pressure.

An alternative

With the current situation in Hong Kong, the financial sector in Singapore might be the main beneficiary of the whole saga. The three listed banks in Singapore, namely, DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp. Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11), are already among the largest financial institutions in the region.

With an independent political system, a stable currency, and strong financial infrastructure, Singapore has much to offer as an alternative to Hong Kong. If Hong Kong’s economic appeal does fall due to the factors I mentioned above, Singapore’s three main banks are in a great position to scale new heights.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.