Investors Still Like Hong Kong

Risk, it’s always about risk; how to manage it, how to evaluate it, how to mitigate it and how to embrace it. It’s the age-old question for investors. At what point does the risk/reward scale tilt too far in one direction or the other. That’s the dilemma for municipal bond investors, stock investors and venture capitalists. After all of the due diligence, science, prognosticating and analysis; which company and which industry will treat investors to the greatest rewards for their measured risk-taking?

Technology, and in particular, the harvesting and transmission of information has been a focus of investors for several years now. Venture capitalists worldwide have turned an eye toward the rewards that new information technologies will create and have attempted to gauge their risk-taking based on an ever-changing landscape.

Hong Kong has remained one of the areas of interest for venture capital dollars. I begin my foray into the venture capital market in Hong Kong with two things in mind; 40% of the foreign direct investment in China comes through Hong Kong and risk is an elusive thing to measure when you are dealing with technologies and markets that are ever-evolving.

As is the case in much of Asia, Hong Kong is a hotbed of new ideas, improvements on evolving ideas and cutting-edge technology. Hong Kong is also home base for many foreign venture capital firms that see a continuous bright future for the region. Although the stock market has been volatile as of late, astute venture capitalists are still finding diamonds in the rough in Hong Kong. Hong Kong still accounts for 27% of venture capital investing in Asia.

A recent conference in Hong Kong called the PIPE (private investments in public equity) conference brought investment professionals from all over the world. They had the opportunity to talk directly with executives from more than 60 Chinese companies; 200 of the attendees were investors from outside China. Hong Kong remains a dominant player in the world venture capital market.

So it’s no mystery that Hong Kong’s venture capitalists have been busier than a Macau casino worker. With the Hang Seng bouncing around and loosing value, the experience of buying IPOs without an exit strategy and the prospect of sub-prime ripples, investors find some comfort in cleantech, social networking and IT companies in the expansion stage. This is the attraction of venture capital throughout Asia.

Is my view of the markets beginning to look transparent? When the tech bubble burst at the end of the 1990s in the U.S., it taught investors something very important. The former head of the Federal Reserve, Alan Greenspan called it “irrational exuberance.” And this gets back to my original point about risk; someone has to do their homework. In the venture capital world, they have learned that lesson. They are pouring money into companies that have already achieved something. To this end, Hong Kong is still looking very good.