For one of the biggest disconnects between financial markets and economies in Asia, look no further than Hong Kong. The dramatic revival of the city’s stock market this year has catapulted it to the top of the global rankings for initial public offerings (IPOs). Mainland Chinese companies are lining up in droves to list in Hong Kong, showcasing the city’s position as the dominant offshore dollar funding centre in Asia.
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In both local currency and US dollar terms, the Hang Seng Index has been one of the best-performing major financial assets in 2025, according to Deutsche Bank data. Mainland Chinese investors have led the charge into Hong Kong’s equity market.
In Hong Kong’s commercial property industry, by contrast, the damage wrought by years of deteriorating fundamentals amid a succession of domestic and external shocks has heightened concerns about the debt servicing burden of developers and the knock-on effects for the banking sector.
On August 13, the Hong Kong Monetary Authority, the city’s de facto central bank, acknowledged that the prolonged downturn, coupled with further declines in rents and capital values this year, was “drawing market attention and raising questions on the ability of banks to effectively manage the relevant risk exposures and financial stability risk”.
Some industry experts and property advisers have called on the government to take forceful measures to address the credit risk associated with commercial property. According to S&P Global Ratings, small and medium-sized banks accounted for 42 per cent of Hong Kong’s total property development and investment loans last year, compared with 16 per cent for the sector as a whole.
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Last week, the Hong Kong arm of the China Real Estate Chamber of Commerce urged the government to set up a HK$20 billion (US$2.5 billion) fund to invest in distressed commercial real estate assets to forestall a credit crunch. This could trigger a “domino effect” that could precipitate a full-blown banking crisis, the chamber warned.