Hong Kong’s $300 Billion Rally Shows It’s Not Time to Panic Yet

(Bloomberg) -- 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.

Tuesday’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 $300 billion to the city’s market capitalization. Shares were little changed at 10 a.m. on Wednesday.

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 on Tuesday, 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,” Fabrice Jacob, who helps oversee about $300 million as chief executive officer of JK Capital Management in Hong Kong, said on Tuesday. “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.

Read on for more views on the protests from within Hong Kong’s financial and business communities.

Adrian Zuercher, head of asset allocation for Asia Pacific at UBS Wealth Management

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. We are underweight, but we’ve been underweight basically since the trade war escalated last July. The market has actually been relatively pragmatic on this whole situation. It has traded more on fundamentals than on politics.

Jim McCafferty, head of Asia ex-Japan equity research at Nomura

Some retail investors might have concerns and ultimately what it might mean is some slowdown in domestic consumption growth in Hong Kong. That’s the kind of a worst outcome.

Eddie Cheung, an emerging markets strategist at Credit Agricole CIB

Our clients are not pulling their money out of Hong Kong. They still trust Hong Kong as a financial center.

Hao Hong, a strategist at Bocom International

There are some challenges, but it doesn’t pay to be negative for now. Normally, the market tends to overreact to short-term news, such as dramatic images unfolding on TV screens.

Michael Every, head of Asia financial markets research at Rabobank

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. 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.

Jonny Rees, a British national who owns four cafes in central Hong Kong

I’m definitely watching the developments with interest. I think anyone would be crazy not to. Do I think it will affect the current business? Probably not in the short term, but who knows what’s going to change in 1, 2, 3, 4, 5 years.

Zhang Jing, a Guangzhou-based tour guide who helps people from China visit Hong Kong

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. 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. Most of them felt more relieved after we explained the actual situation to them.

Lan Mudan, who runs a roadside store in Hong Kong’s Causeway Bay neighborhood

We’ve definitely had less business. Many shops around us closed because no one is here to shop, only to protest. The only things I sold during the protests were these portable fans because it was just so hot. For now, we’re just affected for a few hours on Sundays. If it were everyday, it would be irritating.

Steve Vickers, former head of the Royal Hong Kong Police Criminal Intelligence Bureau and CEO of Steve Vickers & Associates, a political and corporate risk consultancy

Businesses should bear in mind that despite the extraordinary media images, much of Hong Kong was not materially affected by these incidents. In the longer term, the government’s handling of the extradition bill issue has reinvigorated what was an ailing pro-democracy movement. A government crackdown and large scale arrests of the extreme elements is likely and may result in further but smaller demonstrations.

--With assistance from Alfred Liu, Chanyaporn Chanjaroen, Mei Futonaka, Debby Wu and Jinshan Hong.

To contact Bloomberg News staff for this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net;Livia Yap in Singapore at lyap14@bloomberg.net;Kari Soo Lindberg in Hong Kong at klindberg13@bloomberg.net;Daniela Wei in Hong Kong at jwei74@bloomberg.net;Sheryl Tian Tong Lee in Hong Kong at slee1905@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net, Sam Mamudi

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With assistance from Bloomberg