HK as 'parking lot' can capture Mainland investments

It can help weather difficult times.

It has been noted that notwithstanding the gloomy outlook in terms of tourism and retail sales, the expectation of further RMB depreciation should continue to provide incentive for Hong Kong to attract capital from the Mainland.

According to a research note from Natixis, therefore, Hong Kong can still operate as a parking lot until China's future becomes clearer (and in particular until the 19th Party Congress next year).

In addition, the expected weakening of the Singaporean dollar should also help Hong Kong escalate positions as Asia's offshore financial center in 2017.

Here's more from Natixis:

Hong Kong has for long acted as a parking lot for mainland capital either bringing money in in the good times or getting the money out in the not so good ones. We are now in the latter part of the game as clearly shown by China's large capital outflows against the backdrop of a continuously weaker currency.

The venues for Chinese money to leave Hong Kong are manifold, be it in a recorded or unrecorded way. First, discrepancies in trade data from the Mainland and Hong Kong show that large amounts of money has flown out of the Mainland into Hong Kong via overinvoicing of Hong Kong exports into the Mainland.

In the same way, the Shanghai Hong Kong Stock Connect shows consistent net outflows from the China's equity market. Although GDP growth would slow from 2.4% in 2015 to 1.3% in 2016, we expect a pickup to 1.5% in 2017 and progressively to 2.0% in 2018 as the benefit from financial activities on Mainland's capital outflow could shield the economy from the loss of Mainland tourist spending in Hong Kong.