Hong Kong Stocks Succumb to Protests With Local Economy at Risk

(Bloomberg) -- The growing frustration over Hong Kong’s political impasse is starting to show in the city’s stock market.

The MSCI Hong Kong Index closed lower Tuesday even as stocks rallied across Asia. That follows Monday’s biggest sell-off in more than six weeks, after protesters clashed with police for an eighth weekend. While Hong Kong’s financial markets had been surprisingly resilient, traders are losing faith as the violence threatens to disrupt the local economy. A rare press briefing by Beijing on the city’s unrest did little to quell the unease.

Companies related to office and residential property, as well as shopping malls, took the biggest hammering. The unrest has kept tourists away from Hong Kong and forced retailers to close stores in some of the city’s busiest districts, dealing a blow to sales of jewelry and cosmetics. The weakness is undermining landlords’ ability to raise rents, according to Bloomberg Intelligence.

“We have to be cautious,” said Louis Tse, a Hong Kong-based managing director at VC Asset Management Ltd. “A lot of people investing in Hong Kong will be very reluctant to see all these sort of things happening. It’s been quite a few weeks now.”

Sticking with Hong Kong stocks served investors well this year. The MSCI Hong Kong Index had rallied 14% in 2019 through Friday, compared with 9% for the MSCI Asia Pacific index. The city’s gauge was at a record high as recently as April. Hong Kong property shares jumped in June, despite a liquidity squeeze that sent local borrowing costs to decade-highs.

MTR Corp., which operates Hong Kong’s trains and develops properties, fell the most this year on Monday on volume that was more than double the three-month average. Swire Properties Ltd., which owns stakes in luxury malls, office spaces and hotels, suffered its longest losing streak in 10 months. Wharf Real Estate Investment Co. -- owner of the city’s huge Harbour City shopping complex -- slumped 4.7% on Monday.

Some say that concern China will tighten its grip on the city is misplaced. While speculation was rife last week that Beijing was preparing to deploy the army if asked to by the Hong Kong government, policy makers are unlikely to take such drastic action just as a new round of trade talks with the U.S. starts in Shanghai on Tuesday.

“I think it’s overdone,” said Justin Tang, head of Asian research at United First Partners. “China is already fighting on another front in the form of Donald Trump’s trade war and is unlikely to want to add to its issues by raising tensions.”

At risk is Hong Kong’s track record as a city resilient to turmoil: from Asia’s financial implosion during the late 1990s to the SARS outbreak in 2003 and the global credit crunch of 2008, Hong Kong has always come out stronger. This time, some businesses have already noted an uptick in client queries about whether they should move money to Singapore.

“The longer the process goes on, the more likely foreign companies will look to relocate,” said Stephen Innes, a managing partner at Vanguard Markets Pte in Singapore.

--With assistance from Tian Chen.

To contact the reporters on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, David Watkins

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