Hong Kong 2006: Good year vs. bad year
What a year it's been for Hong Kong finance professionals. The index reached its highest point ever, and the stock market was swollen by some jumbo-sized offerings from China. But not all areas did equally well. Here's our verdict on what was hot and what was not.
Primary and secondary markets:
"Corporate financiers in Hong Kong have had a record year bonus-wise and business-wise," says Nick Lord, a director at Heidrick and Struggles.
It doesn't take an IQ of 140 to work out where the record-breaking conditions came from. Plenty of blue chip I-banks were involved in underwriting either US$20bn ICBC offering. ICBC threw off some half a billion dollars in fees, proving that the local fee pool can (occasionally) stack up against the best that London and New York can offer. Brokerage operations also did extremely well as stock trading volumes surged. Little surprise, therefore that Morgan Sze, a head trader in Goldman's principal strategies group based in Hong Kong, is rumoured to have made a US$100m bonus.
Cross-border M&A volumes were also up substantially on last year: PricewaterhouseCoopers estimated that Asia-Pac volumes were up 32 per cent by the end of the first half.
PIA and SSG:
Principal investment arms and special situations groups at investment banks have also put in some stellar performances. Goldman Sachs hit the jackpot with its investment in ICBC and its SSG was also reported as carrying out an investment in a major Chinese meat producer, Shineway.
The derivatives boom, for both debt and equities, is finally hitting Asia. Derivatives salesmen are amongst the best-paid beneficiaries. Yield-hungry investors from developing countries, who have only recently been allowed to invest overseas, are keen buyers of structured products and capital-guaranteed products.
The fast-growing hedge fund market is showing signs of wilting.
"The landscape has become increasingly competitive and we are now beginning to see the demise of the home-grown hedge fund," says Kevin Yeung, director at search firm Whitney Group.
Indeed, the demise of HDH, set up by former Lehman bankers is a sign that despite the frenzy at the beginning of the year, hedge funds can go (a long way) down as well as up. Beware those funds which have emerged in a the recent bull market - go for established names, advise recruiters.
M&A had a great year, but Lone Star's failed attempt to sell its 51 per cent stake in Korea Exchange Bank to Kookmin Bank shows that doing business in Asia isn't always as straightforward as it seems. Political loose ends can unravel disastrously - think Singapore's acquisition of Shin Corp. M&A bankers will end the year with the realization that steering deals through the complex cultural problems in Asia is far from easy.
What a paradox this sector has proven. Poised to take over the most dynamic and promising emerging market in the world, the result has been huge fee income thanks to record liquidity but few significant deals. Heavy hitters like KKR have opened their office in Hong Kong - it will be interesting to see how they do in 2007.
eFinancialCareers' editorial team will now be taking a festive break before returning in the New Year. A very Merry Christmas to all our readers.