How is Hong Kong becoming a beneficiary of the US-Iran Conflict?

Author: Ken (Kin Tai) Cheung

Co-Chairman, Financial and Global Markets Committee 

Financial Executive Club (FinEx Club) Research Centre

Research Analyst: James Chow

Skyrocketing oil prices, supply-driven inflation, global equity sell-offs, and treasury market turmoil have all stemmed from the closure of a narrow 33‑kilometer maritime corridor between Oman and Iran—the Strait of Hormuz. Despite its size, this chokepoint is critical to the global economy, particularly for the Middle East, Europe, and Asia. Accounting for a quarter of the world’s crude oil and one-third of natural gas flows, the Strait was shut down by Iran for the first time in history, in retaliation against U.S. military provocations. While the conflict appears to leave only losers, one overlooked beneficiary has emerged: Hong Kong.

Middle East

In recent years, the Middle East has emerged as a powerful magnet for global capital. According to the World Bank, the Middle East and North Africa region recorded net foreign direct investment inflows of USD 190.05 billion in 2024—more than double the USD 86.09 billion registered in 2020. Family offices also expanded aggressively, drawn by opportunities across asset classes. The UAE, Saudi Arabia, and Qatar positioned themselves as investment hubs, offering tax incentives, policy support, and ambitious economic visions. The UAE’s early reopening during the pandemic, coupled with initiatives such as the Golden Visa program and the removal of foreign ownership caps, signaled a strong commitment to global investors. Saudi Arabia’s “Vision 2030” sought to diversify away from hydrocarbons, building momentum in finance and other sectors. The region’s abundant factor endowment—particularly in crude oil and natural gas—has positioned its countries as major sources of global capital. Sovereign wealth funds such as the Abu Dhabi Investment Authority and the Kuwait Investment Authority, whose assets exceed USD 1 trillion, strategically allocate portfolios across both private and public markets to reduce dependence on natural resources. By channeling vast capital into global finance, energy, and emerging sectors like artificial intelligence, these funds have become highly sought-after investors. Consequently, international capital markets actively compete to attract their foreign investments, recognizing their transformative influence on global economic flows.

Turning Point

That momentum has now been disrupted. The escalation of the U.S.–Iran conflict in February destabilized the Gulf. Iran retaliated against U.S.-aligned states by striking military bases, energy facilities, and critical infrastructure. The attack on Kharg Island—a port handling 90% of Iran’s oil exports—was designed to trigger shortages across Asia and Europe. Major urban centers were not spared: Abu Dhabi sustained damage, while drone strikes forced suspensions at Dubai International Airport, the busiest hub for international passengers. Even iconic landmarks such as the Burj Al Arab were hit, raising alarm over tourism and foreign capital. The conflict has cast uncertainty over the opportunities, stability, and sustainability of Dubai being a leading financial center in the region, as reflected in 20% being wiped off from the Dubai Financial Market General Index between February 23 to March 16, and properties having steep discount of price cuts ranging from 12%-15% and a drop of 37% YoY for the first 12 days of March in UAE. These events have shaken global markets and underscored the fragility of Gulf economies.

Hong Kong

Against this backdrop, Hong Kong has staged a remarkable resurgence. Hong Kong is the gateway to the international market for Chinese enterprises to attract foreign currency denominated offshore capital, with diverse institutional investors and robust financial infrastructure to support equity and debt capital markets. In 2025, it became the world’s largest equity capital market, hosting 119 IPOs—a 68% year-on-year increase—and raising HKD 285.8 billion. Family office registrations grew 25% over two years, supported by private bank expansions and rising wealth management headcount. This revival marks a sharp turnaround from earlier struggles with political unrest and the pandemic.

Several factors underpin Hong Kong’s appeal as a safe haven for reallocated capital. Long established as Asia’s international finance center, the city benefits from robust infrastructure and its unique position as a facilitator of trade between China and the West. Under “one country, two systems,” Hong Kong maintains an independent legal framework rooted in the rule of law, ensuring equal treatment, human rights protections, and investor safeguards. The Hong Kong Monetary Authority has operated a credible currency board system for more than 40 years, maintaining 100% USD reserves to back the domestic currency and ensuring a stable peg—minimizing FX risk and value erosion. Investor confidence has also rebounded in Chinese TMT and healthcare sectors, with the Hang Seng Tech Index surging nearly 70% from its October 2022 low, driven by attractive valuations and AI-led growth. Policy tailwinds further strengthen competitiveness: a 0% concessionary tax rate for qualifying family offices and relaxed residency requirements under the Capital Investment Entrant Scheme (shortened from two years to six months). Cultural openness also differentiates Hong Kong from Middle Eastern hubs—its bilingual population bridges East and West, making it an ideal platform for global investors to park assets across primary, secondary, and alternative markets.

Competitive Landscape

Traditionally, Hong Kong and Singapore—two Asian trade hubs—compete directly in attracting foreign capital. Each offers distinct channels of financial access across the region. Through Northbound Stock and Bond Connect, investments parked in Hong Kong can be allocated into China’s equity and debt markets, providing diversification without requiring additional regulatory licenses. By contrast, Singapore serves as a gateway to ASEAN and India, though these markets are largely developing economies with higher return volatility.

On the regulatory front, Hong Kong has eased immigration rules by granting residency to individuals who invest HK$30 million (US$3.9 million). By contrast, Singapore’s Global Investor Programme (GIP) sets a significantly higher bar, requiring a minimum investment of SG$10 million (US$7.85 million) to qualify for permanent residence. This underscores Singapore’s notably stringent immigration regime, while positioning Hong Kong as comparatively more accessible and conducive to international business mobility. At the same time, Singapore has tightened its Know-Your-Customer (KYC) requirements and intensified anti–money laundering enforcement following the SG$3 billion scandal that exposed illicit activities and led to millions of dollars in fines against banks. While these regulatory updates strengthen safeguards and reinforce Singapore’s reputation as a secure financial hub, they may also deter certain foreign direct investments that seek jurisdictions with lighter compliance burdens.

Conclusion

In the short term, global investors with exposure to the Middle East are likely to adopt a cautious, wait‑and‑see stance. Should conflict persist, however, capital flight from the region becomes increasingly probable. In such a scenario, Hong Kong is well‑positioned to attract inflows, offering diversification, stability, and growth opportunities that reinforce its role as a leading international financial center. With direct access to the China market, supportive policy tailwinds, and more flexible immigration measures, Hong Kong is also emerging as a more competitive destination relative to its regional rival, Singapore.