Keeping it Local

I read an article recently about the effort to keep Shaw Brothers, a Hong Kong concern, in the hands of Hong Kong investors. Foreign private equity companies were also interested in acquiring the media company, along with its affiliate; Television Broadcasts Limited. The Hong Kong based investors want the firm to remain locally owned.

This action might indicate a new phase in the acceptance of investor funds coming from outside China. There are enough wealthy investors inside the country now to stave off attempts at foreign ownership of ‘prized’ assets in China.

There were similar concerns in the U.S. several years ago when wealthy Japanese were purchasing scores of acclaimed pieces of real-estate in cities like New York and property in tourist destinations in Hawaii. Americans were concerned about the growing number of prime properties in the hands of foreigners. More recently, a deal which would have given ownership of a U.S. port to the UAE was stopped for security concerns. The concerns of investors in Hong Kong is understandable and not without precedent.

As of this writing, the markets in China are down about 14% since the beginning of the year (2008).
International investors are starting to look at Latin America with more interest and diverting more dollars to India. They have not lost sight of the opportunities in China, but some of the excitement that is generated by double-digit returns is missing. As a result, the foreign money will slow down and the influx of foreign private equity and venture capital companies and their presence and influence may wane temporarily.

Everything that happens in the financial markets is the result of cycles. This lesson is borne out year after year and decade after decade. The domestic investment in Chinese properties, companies and assets will gradually shift towards more Chinese ownership as the venture capital market becomes more mature and wealthy investors buy back assets from foreign investors. Important ‘prized’ assets like media companies will then be retained by Chinese domestic investors.

In the meantime, all parties involved in the Shaw Brothers stock purchase are claiming that reports of an impending stock purchase are only rumors with no basis in fact. The entertainment company, with a long history in Hong Kong, is an institution of sorts with its history of martial arts movies and creation of big-name stars.

If the ‘rumors’ are correct, a portion of the company, or at least a 26% stake in Television Broadcasts Ltd, would be purchased by an outside entity. Speculation is that TVB may have a good future on the mainland, making its value to investors understandable. Despite the impact of economic cycles, the entertainment business always seems to do okay.

According to the Ministry of Commerce, more than US$18 billion of foreign investment entered China in just the first 2 months of this year alone. More than a trillion in total. No wonder Chinese investors have to counter that trend as much as domestic funds will allow.

In the meantime, the ownership of one prized Hong Kong asset may remain in the hands of domestic investors. Only time will tell.