Current affairs (i) - Hong Kong fiscal budget 2016 - 2017

Hong Kong Financial Secretary John Tsang delivered his 2016 - 2017 fiscal budget today. Here are some of my takeaways:

Hong Kong future fund: the government is actively planning ahead to address the needs of the aging population. Hong Kong future fund (an over USD 20bn fund to cater for the future needs of Hong Kong population) was suggested in 2015 - 2016 fiscal budget and launched early 2016 to seek capital growth. More than half of the asset in the future fund will be invested in alternative assets such as hedge funds and private equity. 

My view is that this is an innovative initiative on the part of Hong Kong government, and I like the fact that Hong Kong government is taking a long term view. The impact of aging population can be felt in the next decade or so in the Hong Kong; so it is crucial that the Hong Kong government think of ways to cater for this structural change in demographics. 

My concern is the strategic allocation to alternative assets will actually achieve the goals of providing for the ageing population. Private equity, for example, is illiquid asset; timing of investments and divestment is crucial, and hence private equity assets cannot be easily liquidated to meet any payment obligations. Instead, why not consider a liability-driven approach to match payment obligations with cashflow income. 

Lack of financial talents: Mr. Tsang pointed out that there is a lack of talents in the financial industry - particularly in the insurance and asset management segment. From an employee perspective, it is a good to accumulate skills in this area (good that I am now working in asset management!).

Hong Kong government is supportive of entrepreneurship: Hong Kong government has used various means to supportive budding entrepreneurship. Three main channels of support are through providing trainings / education, providing office space (in collaboration with Hong Kong Technology Park), and providing funding (using government's money and in collaboration with venture capitals). 

My view is that these supportive measures by the government are crucial for the Hong Kong not to lose its competitive edge. Hong Kong has long been a (financial) service economy - but with the rise with cities like Shanghai and with labor wages in China increasing, Hong Kong is gradually losing its edges in the financial and the manufacturing sector. For Hong Kong to successfully adopt to this structural change, entrepreneurship needs to be encouraged.