(Bloomberg) -- The waves of protests gripping Hong Kong have prompted Nikko Asset Management Asia Ltd.’s Leong Wai Hoong to dump some of his debt holdings in the city.
The Singapore-based senior portfolio manager decided about three weeks ago to reduce his exposure to Hong Kong bonds denominated in the greenback, particularly those tied to the property and retail sectors. He then picked up quasi-sovereign debt in South Korea and Singapore, which have similar credit ratings and returns, Leong said in an interview.
“Our portfolios were overweight Hong Kong,” said Leong at Nikko Asset Management, which had $214.1 billion of assets under management as of March 31. “We reduced exposure as the protracted and escalating unrest in Hong Kong may change the low beta of this asset, and there is also the tail risk of the PLA being involved.”
While still seen as unlikely, there are signs China has stepped up preparations to mobilize mainland forces to quell discontent in Hong Kong. The Asian financial hub is also at risk of a recession, exacerbated by U.S.-China trade tensions. The city’s investment-grade bonds widened 8 basis points Wednesday, the most since end-July, according to an ICE BofAML index.
The city’s worst crisis since the handover started in June, with rallies against legislation backed by the pro-Beijing chief executive, Carrie Lam, that would allow extradition to mainland China. Lam said last week the economic downdraft caused by the protests is worse than that during the SARS epidemic and the 2008 global financial crisis.
Hong Kong’s government on Thursday announced a stimulus package worth more than $2 billion and said the economy will struggle to grow at all this year. Gross domestic product will expand by 0% to 1% this year, Financial Secretary Paul Chan said, revising down the previous forecast of 2% to 3%.
Political unrest in Hong Kong and turmoil in Argentina have added to trade concerns and dampened sentiment in bonds and equity markets across Asia.
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