The Hong Kong protests, which we covered [10]over the weekend [11], and which took a dramatic turn for the worse overnight when thousands of students camped out and demand universal suffrage on the city streets and were in turn tear-gassed and arrested en masse by the local riot police demanding students disperse or else, and where the leader of the student protest, Joshua Wong - who had been previously arrested and was released on Sunday night - has openly called for the resignation of Hong Kong Chief Executive Leung Chun-ying in an interview with Hong Kong Cable TV, have done the unthinkable: they have impacted financial markets and the "wealth effect" transmission mechanism of the local billionaires.
Here as a summary of the latest market activity via Bloomberg:
- Hang Seng Index declines 2.25% after falling as much as 2.5%, most since Feb. 4; erases YTD gains
- MSCI Hong Kong Index drops as much as 3.2%, most since Nov. 2011
- HSI Volatility Index surges as much as 27%, most since Aug. 2011
- HKD weakens as much as 0.09% against USD to HK$7.7648, most since Dec. 2011
- Hong Kong 1-yr rate swap rises 3 bps, most since June 2013
- Chinese Yuan falls 0.24%, most since March 20, to 6.1415 per dollar.
- Yuan 12-mo. forwards drop 0.25% to 6.2596 per dollar after falling by as much as 0.34%, most since March 12
- Fitch says events in past 24 hrs won’t significantly affect ratings;
says unlikely that protests will be on wide enough scale and last long
enough to have material effect on H.K.’s economy and financial
stability: Fitch’s Colquhoun
SECTORS, COMPANIES
- Galaxy Entertainment leads decline in Macau casinos
- Luk Fook leads drop in retailers, developers amid protests; Luk Fook shuts 4 stores, Chow Sang closes 6 stores
- Protests will have negative impact on retailers: UBS
- Wharf tumbles most in 16 months amid protests
- Swire Beverages workers strike to support protesters
- Ctrip sees mainlanders’ travel to HK unaffected by protests
- 36 bank branches closed as of 10:30 HK time: HKMA
- Quicktake: Hong Kong Tries to Cut Path From Liberty to Democracy: QuickTake
PRE-MARKET ANALYST REACTION
- H.K. dollar will “inevitably” be under pressure on weakened investor confidence amid political instability, says Daniel Chan, analyst at Brilliant & Bright Investment; interest rates could spike amid potential fund outflows
- “Sentiment will be bad,” said Arthur Kwong, HK-based head of Asia Pacific equities at BNP Paribas Investment Partners. “Unfortunately, the macro fundamentals are weak already.”
- Retailers and tourism-related cos. may be among most affected on speculation protests will deter mainland tourists from visiting H.K. during National Day holidays, said Gavin Parry, managing director of Parry International Trading
- Financial shares may also come under pressure, said Ronald Wan, chief China adviser at Asian Capital Holdings
- Dickie Wong, executive director of research at Kingston Financial, said HSI may fall to about 23,000, or 2.9% below its last close, in the “short term”
- “The markets were not counting on anything extreme to happen,” said Govert Heijboer, HK-based chief investment officer of True Partner Advisor. “Whether it immediately moves or not, implied volatilities will rise in Hong Kong given this additional uncertainty.”
- Protests may deter mainland investors from buying Hong Kong shares when the exchange link starts, said Daniel Chan, analyst at Brilliant & Bright Investment
- “If this concludes in a few days, impact on markets and the economy will be limited, especially with a few holidays ahead,” says Mari Oshidari, strategist at Okasan Securities Group. “But this will make it hard for people to buy in a market that’s lacking positive news to begin with. People in Hong Kong are serious about this issue, and there’s a political risk this may happen again.”
In fact, the threat to the wealth effect is so big, the local central bank had to step in. From the FT [12]:
Hong Kong’s quasi central bank implemented emergency measures on Monday morning as the battle between Hong Kong democracy activists – many of whom spent the night camped on the streets – and police made itself felt on the territory’s businesses and markets.
The Hong Kong Monetary Authority acted after a tense night that saw tear gas and pepper spray used in a failed bid to clear tens of thousands of protesters from a central business district.
Several banks, including HSBC and Standard Chartered, shuttered a handful of branches. The Hong Kong dollar weakened 0.07 per cent against the greenback – to which it is tightly pegged – in early trading, bringing it to a six-month low. The benchmark Hang Seng Index opened 1.4 per cent down at 23,359.
The locals appear undaunted by a possible Beijing crack down. At least undaunted for now:
For most of Sunday, the situation inside the barricaded area had been peaceful. Martin Lee, the founder of the Democratic party, and Jimmy Lai, the media tycoon who owns the anti-Beijing Apple Daily, joined the thousands of students present.
“We don’t expect them [Beijing] to back down but we have to persist with our civil disobedience,” said Mr Lai. “If we don’t persist or resist, then there’s no hope.”
While people in Hong Kong frenetically used social media to spread news about the protests, there was much less reaction on Weibo as the Chinese government blocked any mention of “Occupy Central” on the Twitter-like service.
During the afternoon, it was difficult to use mobile phone services in the protest area, leading to speculation that the government had blocked networks to prevent reporting from the scene.
Finally, while the US was quick to share in its punditry when Ferguson happened in Ferguson, when it moves to China and any word out of place can put US-Sino relations back years, suddenly the White House is all too quiet on the topic of human rights:
So far the US and UK have said very little about protests. Many people believe that the UK wants to avoid hurting trade relations with China. The Foreign Office said it was “important for Hong Kong to preserve and exercise them [rights and freedoms] but it needs to be done within the law”.
Rory Stewart, the Conservative chairman of the cross-party defence committee, said: “We have a special relationship with Hong Kong and we need to find a way of putting as much energy as we can, politically and diplomatically, into supporting them.”
Yes, yes, now... how does one say BTFD in Hong-Kongese(sic)?
