Markets | HKD300 billion rally shows it’s not time to panic yet

For investors, bankers and companies with long enough time horizons, betting on Hong Kong’s resilience in the face of crises has been a winning proposition.

From Asia’s financial implosion during the late 1990s to the SARS outbreak in 2003 and the global credit crunch of 2008, the commercial hub has always found a way to ride out the storm.

That track record is one reason why many of those with money at stake in Hong Kong today are holding tight amid the city’s biggest political crisis since its handover to China more than two decades ago.

Yesterday’s action in the stock market was a case in point. Even after a chaotic night in which a small but destructive group of protesters ransacked the legislature, the MSCI Hong Kong Index climbed 1.7%. The index has jumped 7.3% since demonstrations against a controversial extradition bill kicked into high gear three weeks ago, notching one of the biggest gains worldwide and adding more than HKD300 billion to the city’s market capitalization.

That’s not to say Hong Kong’s moneyed classes have ignored the upheaval. Real estate stocks – among the most sensitive to the protests – have underperformed in recent weeks, while retailers and tourism-related companies have expressed concern about a potential slowdown in sales. Several of the city’s wealth managers have noted an uptick in client queries about whether they should move money to Singapore.

Yet crucially, few seem to have pulled the trigger. For all the concern about political unrest and the steady erosion of Hong Kong’s autonomy under Chinese rule, the city’s status as Asia’s premier financial center is, for now at least, still intact.

It was business as usual for most Hong Kong professionals yesterday, even though some worked from home or faced slower morning commutes around protest sites. For the city’s stock traders and investment bankers, the demonstrations were largely overshadowed by news of a truce in the U.S.-China trade war and headlines on Anheuser-Busch InBev NV’s decision to raise as much as $9.8 billion by listing its Asia Pacific beer unit in Hong Kong.

“What happened yesterday was surreal,” said Fabrice Jacob, who helps oversee about $300 million as chief executive officer of JK Capital Management in Hong Kong. “But make no mistake: Hong Kong remains an extremely safe place to live and run businesses.” The 54-year-
old French national, who founded JK Capital in 1998, said he has no plans to change his investment strategy or his firm’s operations because of the demonstrations.

Adrian Zuercher, head of asset allocation for Asia Pacific at UBS Wealth Management, said the disruption and violence would have little impact on the Hong Kong economy.

“Macroeconomic-wise there should be no visible growth slowdown for Hong Kong. The city actually works quite well. I’ve been to work every day in my normal way,” said Zuercher. “The market has actually been relatively pragmatic on this whole situation. It has traded more on fundamentals than on politics.”

Others say there is more cause for alarm.

“As wonderful as Hong Kong is, unless you’re taking a long- run view that China changes, you’ve always had a ticking clock in the background and now the clock’s going much faster than usual,” said Michael Every, head of Asia financial markets research at Rabobank.

“The Hong Kong dollar is a one-way trade, either everything’s OK or the peg goes and it’s a disaster, whereas the Singapore dollar will always be the Singapore dollar. If you’re not locked into it, I don’t see what the risk-reward in favor of Hong Kong is relative to Singapore.”

“We are reaching the peak summer travel season now and were supposed to be able to lift prices. But this year, it’s not easy to attract tourists to Hong Kong if we raise the price to last year’s level,” said Zhang Jing, a Guangzhou-based tour guide who helps people from China visit Hong Kong.

“After reading some news in Chinese media, which described the protests as a riot, about half of customers who came to ask for Hong Kong tours expressed their concerns,” explained Zhang. “Most of them felt more relieved after we explained the actual situation to them.” MDT/Bloomberg