Our comprehensive assessment of Hong Kong's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Hong Kong, as well as the latest industry developments that could impact Hong Kong's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Hong Kong before your competitors.

Country Risk

Hong Kong Country Risk

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Hong Kong

Core Views

  • Hong Kong's economy slowed yet again in Q214, with real GDP growth coming in at a disappointing 1.8% year-on-year (y-o-y). Owing to dual headwinds from China as well as the teetering domestic property market, we maintain our 2014 and 2015 real GDP forecasts to 2.5% and 3.3% . The ongoing political protests in Hong Kong carry downside risks for our 2014 growth forecast, as commerce has been hit during the most acute phases of public participation. In particular, tourism earnings are set to suffer significantly, as Chinese tourists are discouraged from visiting the city-state.

  • We continue to expect the nascent correction in Hong Kong property...

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Hong Kong Operational Risk Coverage (9)

Hong Kong Operational Risk

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BMI View :  Hong Kong is a very low risk country with no single, significant deterrent to foreign investors. Its overall Operational Risk score is boosted by a number of factors, namely its large, skilled labour force, developed logistics network, open economy with relatively low fiscal and trade barriers and minimal red tape, as well as its low crime rate. That said, long- term risks do threaten Hong Kong's logistics network , such as the country's constantly rising population, which increases the pressure on the transport infrastructure and utilities supply, and the increasing competitiveness of mainland Chinese ports . Hong Kong...

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Hong Kong Crime & Security

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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...

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Hong Kong Labour Market

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BMI View: A large labour force of more than 5mn and a steady supply of migrant workers from China and other Asian states ensure a high availability of cheap and flexible labour in Hong Kong. Authorities are keen to keep government intervention in the labour market to the bare minimum to preserve Hong Kong's status as an employer-friendly business hub. However, some sectors, such as construction and information technology, will face skilled labour shortages owing to inadequate education in technical vocational schools and too much government spending on the tertiary education sector. Nevertheless, Hong Kong is a high performer in our Labour Market Risk Index , scoring 77. 2   out of 100 and placing second globally, just behind the United States.

...

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Hong Kong Logistics

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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,...

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Hong Kong Trade & Investment

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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...

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Hong Kong Industry Coverage (18)

Autos

Hong Kong Autos

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BMI View: We forecast Taiwan's auto sales growth for 2014 to come in at 8.7%, largely backed by a surge in the commercial vehicle segment. According to the Hong Kong Transport Department (HKTD), auto sales grew by 4.2% year-on-year (y-o-y) in October 2014, a slowdown from the strong 20.8% y-o-y growth seen in the previously month, largely due to the pro-democracy protests (also known as the Umbrella Movement) that began in late September. Auto sales grew by 9.4% y-o-y for the period January-October, and we expect pro-democracy protests to dampen sales for the remaining months of 2014.

Beyond 2015, we are more positive on the outlook for the passenger car segment, underpinned by a de-escalation of the Umbrella Movement and a more positive economic outlook. We also expect some pent-up demand due to a decline in sales in Q414 to spill over into the early part of 2015. As such, we forecast...

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Commercial Banking

Hong Kong Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Hong Kong Consumer Electronics

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BMI View: H igh incomes and   a tech literate population combine to ensure demand for the latest devices remains strong in Hong Kong , helping to compensate for the diminished first time buyer opportunities in all three segments as a result of high penetration rates .   S pending growth on consumer electronics devices slowed in 2012 and 2013 due to a combination of a weaker economic environment, price erosion and high penetration of devices in key markets , but t he outlook for 2014 is stronger . W e expect growth to accelerate as high consumer confidence and  ...

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Food & Drink

Hong Kong Food & Drink

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BMI View :   Despite largely favourable business and regulatory environment, food and drink market in Hong Kong is highly mature and saturated thus presenting limited growth opportunities for foreign investors. Economic headwinds facing the territory over the coming quarters will put a further restraint on consumer spending. That said, we believe that innovative, convenience-oriented and private label products will continue to enjoy relatively high popularity over the coming year.

Headline Industry Data

  • Total food consumption (local currency) growth year-on-year (y-o-y) in 2014: +3.2%; forecast compound annual growth rate (CAGR) 2013-2018: +3.4%.

  • Per capita food consumption (local currency) growth (y-o-y) in 2014: +2.5%; forecast...

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Freight Transport

Hong Kong Freight Transport

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Following a year in which volumes increased in all but one freight mode, BMI forecasts that 2015 will signal growth across the whole of Hong Kong's freight transport sector.

US demand is set to continue recovering in 2015, while the eurozone's economy, we believe, will maintain growth albeit at a slow pace. Development in both major economies will have a positive effect on throughput at Hong Kong's port, which caters as a container shipping hub for Asia, and also the country's air freight volumes, with Hong Kong boasting the busiest cargo airport globally.

The port of Hong Kong is forecast to demonstrate growth both in tonnage and box throughput in 2015, after its performance improved in 2014. Although up until 2012 the port was managing to weather the competition from the development of Shenzhen as China's second largest container port and despite the close proximity of the two facilities was...

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Information Technology

Hong Kong Information Technology

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BMI View:   W hile a lucrative market, the maturity of Hong Kong's IT market means growth rates will underperform emerging markets in the A sia P acific region. However , we believe it s position as a regional data   centre and cloud services hub will sustain growth rates above those observed in the majority of developed markets globally . ...

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Infrastructure

Hong Kong Infrastructure

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BMI View: The delays with several public projects suggest that their uncompleted construction works could spill over to 2014 and 2015, boosting construction and infrastructure growth rates during these years. That said, we do not believe that this boost is sufficient to bring 2014-15 growth to levels seen in previous years due to the problem with labour shortages and the threat of a Chinese economic slowdown.

Key Trends And Developments

  • We remain optimistic about Hong Kong's residential and non-residential building construction sector over the medium term (2014-2018). We forecast Hong Kong's residential and non-residential building sector to experience growth of around 2.7% in 2014 before moderating to 1.3% between 2015 and 2018.

  • We forecast full-year real growth for Hong Kong's construction sector to...

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Insurance

Hong Kong Insurance

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SWOT Analysis
   

Strengths

  • Control of national transmission system.

  • Leading market share in generation.

  • Mix of fuel types.

  • Government backing.

  • Stock exchange listing.

Weaknesses

  • Small relative to European power majors.

  • State control limits flexibility.

  • Lack of geographical diversification.

Opportunities

  • Plant upgrading/expansion at home.

  • ...

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Medical Devices

Hong Kong Medical Devices

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BMI Industry View: The Hong Kong medical device market has experienced strong growth in recent years and this is expected to continue over the forecast period, with the highest growth projecte d for the patient aids sector. Imports of medical devices to Hong Kong are high, especially for such a small market. The bulk of imports tend to be more expensive advanced medical equipment, much of which is re-exported with only a small proportion intended for domestic use. Although its status as a trade hub may be compromised slightly as the proportion of export-related service provision wanes and China becomes more accessible to trade, Hong Kong continues to be an important gateway to the West.

Headline Industry Forecasts

  • Despite being small in size, the Hong Kong market for...

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Oil & Gas

Hong Kong Oil & Gas

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BMI View:   With no domestic energy resources, Hong Kong will be required to meet growing oil and gas demand through imports alone. 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, and the ci ty-state is increasingly likely to turn to the mainland to achieve its goal of curbing its reliance on thermal energy over the coming years.

Headline Forecasts (Hong Kong 2012-2018)
  2012 ...

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Pharmaceuticals & Healthcare

Hong Kong Pharmaceuticals & Healthcare

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BMI View: Although the ongoing political uncertainty will affect business environment, we highlight that Hong Kong will remain as an attractive market for pharmaceutical companies over the longer term owing to rising healthcare demands from its ageing population.

Headline Expenditure Projections

  • Pharmaceuticals : HKD11.24bn (USD1.45bn) in 2013 to HKD12.12bn (USD1.55bn) in 2014; +7.4% in local currency terms and 7.2% in US dollar terms. Forecast unchanged from Q414.

  • Healthcare: HKD122.00bn (USD15.73bn) in 2013 to HKD130.60bn (USD16.81bn) in 2014; +7.0% in local currency terms and 6.9% US dollar terms.  Forecast broadly in line with Q414.

...

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Power

Hong Kong Power

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BMI View: Thermal energy continues to account for the almost all of Hong Kong's domestic energy production; while there have been some tentative steps towards generating energy from renewable sources, these have been few and far between. Closer energy links with China raise questions about how best to reconcile Hong Kong's reliable energy service with China's more volatile market.

BMI forecasts that real Hong Kong's GDP growth will average 3.4% a year between 2012 and 2022, with an increase of 5.0% estimated for 2011. BMI is forecasting an average annual increase of 2.23% to 41.07TWh between 2013 and 2017. Thermal generation, comprising coal, gas and oil, is expected to grow by an average of 2.08% per annum over the same period, and average 2.57% between 2018 and 2022. Thermal power generation will continue to account for all of domestic...

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Real Estate

Hong Kong Real Estate

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BMI View: Hong Kong, as a global financial hub and a gateway to mainland China, has one of the most dynamic commercial real estate markets in the world. Rental rates, particularly for retail, are among the highest in the world, and the market has traditionally been characterised by strong demand and, due to its small size, limited supply. With the market vulnerable to the impact of an economic slowdown in China, the medium-term outlook is one of stability in rental rates.

Hong Kong is a Special Administrative Region (SAR) of the People's Republic of China. It is governed under the principle of 'one country, two systems', which means that it retains many institutions, for example its common law legal system, that date back to its time as a British colony. All this gives a level of predictability to the business environment, although tensions with Beijing over the level...

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Retail

Hong Kong Retail

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BMI View:   Hong Kong's sophisticated retail market faces challenging times as pro-democracy protests extend into key retail districts and impact on sales. The Ebola health alert is also causing concern, with retailers fearing that air travel - and therefore travel retail spending - will be adversely affected. However, the underlying trend is for increased spending on non-essential items over the next few years, leading to continued expansion of the retail sector. We are particularly bullish about the future growth prospects for personal care & insurance spending, which we expect to continue to constitute the highest proportion of overall household expenditure throughout our forecast period. We also forecast robust growth in spending on alcoholic drinks & tobacco over our review period, with...

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Shipping

Hong Kong Shipping

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The port of Hong Kong holds the top position in Hong Kong's maritime sector in terms of both total tonnage and container throughput. BMI forecasts that the facility will continue demonstrating growth in 2015 after improving its performance in the previous year.

Over the rest of the medium term, BMI projects further growth at the port of Hong Kong. Although up until 2012 it was managing to weather the competition from the development of Shenzhen as China's second largest container port and despite the close proximity of the two facilities was managing to retain its lead, Hong Kong is now lost it to Shenzhen.

We, however, highlight that the port of Hong Kong has long-term expansion plans in place to ensure it remains among the world's top ports.

Headline Industry Data

  • 2015 port of Hong Kong...

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Telecommunications

Hong Kong Telecommunications

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BMI View: M obile market growth has stalled in 2014 and consequently BMI does not believe that there is much scope for organic growth on the Hong Kong mobile market. Data usage is expected to be one of the key drivers for H ong Kong's telecoms sector over the next few years. The Hong Kong government is actively promoting the territory as a regional hub for data centres, and BMI believes Hong Kong has the right characteristics to attract data centre investment s . Recent spectrum auctions could pave way to higher 4G investment and the expansion on China Mobile into Hong Kong.

...

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Tourism

Hong Kong Tourism

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BMI's tourism report looks at a range of market indicators in this very well-established tourism industry, including inbound and outbound travel, tourism-related expenditure, hotel developments and overall industry rate. With some of the highest outbound travel rates in the world and very positive inbound arrivals figures, the future is looking very positive for this popular destination at the heart of the Asia Pacific region.

Hong Kong has long been a popular global tourist destination, acting as a transit hub between many international destinations. Asia Pacific countries dominate Hong Kong's inbound arrivals market, in particular China, which sends millions of visitors (many daily visitors) each year. Arrivals from China are vital to the health of the tourism industry, and we are unlikely to see recent protests urging the introduction of arrivals quotas gain any traction. The Hong Kong tourism board estimates that...

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Water

Hong Kong Water

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BMI View:   We have expanded our forecasts to include domestic freshwater resources (largely rainwater collected in reservoirs), desalination production (predominantly used for flushing purposes), and domestic water extraction, total consumption as well as mains consumption, and water losses.

It is our opinion that most of the opportunities in Hong Kong's energy and utilities sector lie with the water utilities sector. The Hong Kong government is becoming increasingly concerned about water scarcity and is looking to explore new water sources so as to ensure a sustainable supply for Hong Kong.

Hong Kong is heavily reliant on the Guangdong imports for the majority of its freshwater consumption, with desalination being largely reserved for flushing, and water recycling resources predominantly being allocated to industrial users. Imported waters from...

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