Competition in Asia's Global Financial Hubs

Hong Kong and Singapore's competition has picked up steam since Singapore Stock Exchange (SGX) made an approximate AUD$8.3 billion bid for the Australian Stock Exchange (ASX), the largest amount ever offered for a securities exchange market. A merger of these APAC nations' exchanges could boost Singapore's credibility as a legitimate regional competitor to Hong Kong.

Hong Kong's hotshot stock market has brought in over USD$52 billion annually for the last two years. In comparison, Singapore's USD$6 billion market fraction valuation is not a direct threat. But these two locations are in a continuous battle for the same resources: foreign investments.

The battle between the Asian powerhouses to attract foreign investment now deepens. An acquisition and merger with ASX would value Singapore's stock exchange at USD$12.3 billion, nearly doubling the value of each exchange's individual net worth and effectively building a new global market powerhouse. In addition to doubling in size, Singapore's exchange would also be poised for growth. Both jurisdictions offer comparable options for businesses, but a growing market of the new SGX's stature would be a stronger threat for taking business out of Hong Kong.

The city-states have drawn in big name global corporations with the lure of low and no corporate tax rates and investment friendly policies. Singapore company formation and Hong Kong company incorporation have become popular strategies for entrepreneurs and multinational organisations looking to improve their global operations. Offshore banking, especially banking in Hong Kong, has helped rake in the dollars as well.

While a range of business categories have been attracted to the SGX, from commodities to successful fitness chains, SGX is also going after niche markets too small for Hong Kong, including real estate trusts, which are heavily regulated on the Hong Kong exchange. Singapore has more than double the REIT value that is held by Hong Kong. Smaller but growing Asian economies, and private companies, are looking toward Singapore to list. Vietnam, Thailand, Indonesia, and other real estate heavy economies are looking forward to the advantages the SGX-ASX merger would provide: a sophisticated market that would allow smaller companies to buy in and list more cheaply than currently available in either Hong Kong or Singapore.

Stock exchange mergers are hot right now, and the benefits they offer current shareholders surpass what market exchanges can do alone, thereby attracting new investors.

Currently discussed mergers between New York Stock Exchange (NYSE) and Deutsche Boerse, and London Stock Exchange (LSE) and Canada's Toronto Stock Exchange (TMX), show shareholders will benefit from a more attractive revenue mix, accelerated earnings growth, greater liquidity, substantial cost savings, gaining access to transcontinental markets, and creating a wider pool and scale for transcontinental operations.

The competitive business environments Singapore and Hong Kong possess are ultimately a win for investors and businesses. Competition between economic hubs stimulates economic activity and provides more opportunities for investing parties. The success enjoyed by entrepreneurs from investing in Singapore and Hong Kong further increases interest from abroad. Whether it is from registering a company in Singapore, setting up a Hong Kong offshore company or using these markets for offshore banking accounts, foreign investment will continue to flow into Asia, especially into these two jurisdictions. Competition in these two cities will continue to help drive the attractiveness of Asia for foreign investment.