Beijing’s proposed national security legislation is increasingly being perceived as too much to stomach for hedge funds based in Hong Kong.
Fund managers and traders are expressing fears about the nature of the security law and, specifically, the targeting of activities defined as «subversion of state power» or «interference» from foreign countries, according to a «Financial Times» report (behind paywall).
«Hong Kong as we know it is dead,» said an anonymous adviser working with hedge funds in Hong Kong and elsewhere in the region. «It will become just another city in China. The hedge fund community will move on to Singapore and elsewhere.»
According to Eurekahedge data, Hong Kong is Asia’s top destination for hedge funds at 420, outnumbering regional runner-up Singapore by more than 80.
Free Flow of Information
«Would you set up here?» said an unnamed chief investment officer for Asia at a multinational hedge fund. «Clearly that's a lot harder to say yes to now.»
Loss of social media freedom, loss of free internet access, capital controls and greater difficulty obtaining visas would «scare the blazes out of us», the CIO explained.
Investor Freedom
«It's impossible to think [the law] won't have a huge impact,» said another unnamed source – a trader – who said that Hong Kong-based financial institutions were underestimating Beijing’s willingness to target more than just political dissent after legislation, suggesting that short sellers and activist investors were also at risk.
«Mainland Chinese regulators are known for targeting foreign entities when markets fall,» the «Financial Times» report added, citing a case earlier this month when Citadel Securities agreed to pay almost $100 million to Chinese authorities over alleged «malicious short selling» during a market rout.
Independent Research
Independent research was also cited by another source – a hedge fund manager – as an issue causing his firm to be «a little bit nervous» due to concerns about «objectivity of information not coerced by politics».
«We rely on objective information, objective reporting,» the fund manager said.
If free press were to be compromised under the new security legislation, «propaganda comes into play in investment decisions».
