The territory, once known as the pearl of the orient, is fast losing its shine. Hong Kong REITs have fallen 16% since the protests started.
June 2019 will go down in history as an important month for Hong Kong. Protests that initially targeted a law regarding extradition have evolved into a general movement about the political future of Hong Kong. At the time of writing, the protests are entering their third month. Multiple activities have been organised for each weekend for up to a month in advance. Because of this turmoil, we have received numerous enquiries from investors about the investment sentiment in Hong Kong.
We think that the Hong Kong market can manage the short-term volatility, as evidenced by the 2,000-point rise in the headline Hang Seng Index in June. We believe that part of the increase is attributed to the renewed trade negotiations between the U.S. and China. However, the gain also indicates that the Hong Kong financial market is deep enough to absorb much more uncertainty than before. Compared to two decades ago when the city was called a “single-layer copper-ware pot” because even small changes in external news flow would trigger a rise or fall.
“There may have been some talks on transferring capital out of Hong Kong, but even the Monetary Authority of Singapore issued a statement to its banks specifically not to target this. Being a Hong Kong-headquartered firm, we have also received fresh reverse inquiries for real estate investment opportunities, showing that some investors are interested in increasing their allocation to the city.”
No End In Sight Anytime Soon
However, the protests are likely to continue for three main reasons.
Firstly, there is more staying power in the current movement, compared with the 2014 Umbrella protests. For 79 days, the 2014 Umbrella Movement occupied Admiralty and Mong Kok, the former being Hong Kong’s political centre and the latter being Hong Kong’s commercial centre. In 2019, however, protesters have not mounted any long-term occupation. Even if roads were blocked, they were cleared in hours. This extends the stamina of the movement, as protesters go home every night and few commercial activities have been disrupted for extended periods. Secondly, the 2014 Umbrella Movement could be described as a youth movement, but the 2019 protests saw more actions from other age groups. Granted, the young generation is still at the forefront. A construction supply shop, for example, wrote in an article about a 13-year-old boy who bought a helmet with pocket money. But the older generation has also been more involved. In the Shatin protest on July 14, multiple video feeds showed older residents refusing police entry to their buildings.
Organisers Range From Mothers to Councillors
Third, the current protests have no visible leaders. In 2014, the Hong Kong Federation of Students (HKFS) — an alliance of the public universities’ student unions — was nominally the protest leader. This was why Carrie Lam, as the then Chief Secretary, organised a public meeting with the HKFS representatives. In 2019, while the million-people marches were organised by the Civil Human Rights Front—a protest organiser with a long history—many other protests were largely self-organised. These self-organised protests are happening every weekend in different districts.
“We counted 15 separate protests from the first million-people march on June 9 to July 15, with organisers ranging from local district councillors to a group of Hong Kong mothers.”
The lack of identifiable leaders means that the government does not have a negotiation counterparty.
In fact, the university student unions rejected Carrie Lam’s request to meet, on the grounds that the 2019 protest is not a student protest and the student unions do not represent the protesters. The apparent lack of leaders also means that the situation is particularly fluid.
While REITs initially stayed rangebound at the start of the protests, they have since fallen about 16%. However, they remained slightly positive year-to-date. As the movement has dragged on, retail sales growth has weakened throughout June and July. The lack of a resolution has hit confidence in the short term. Crucially long term prospects depend on how the movement is resolved.
What Will Happen After 2047?
For two decades, the major political movements all revert back to a simple but central question: How should the social contract between the government and the people in Hong Kong be arranged?
Since the 1997 handover, Hong Kong has been governed under the “one country, two systems” protocol, supposedly in place for 50 years until 2047. In 2047, many of the readers of this magazine and I will be retired. But the 13-year-old boy who bought the construction helmet will only be 40 years old and will be in his professional prime. He is, on top of the immediate triggers, trying to seek an exact clarification on the arrangements after 2047. This is perhaps the real fuel that has driven the movement into a second month and beyond. On September 4, Chief Executive Carrie Lam announced the formal withdrawal of the extradition bill. It meant that the government had finally acceded to one of the protesters’ five demands. While this is a positive development, it has not answered the deeper question of Hong Kong’s future after 2047. The long-term investment merits of Hong Kong depend on when and how this clarification is reached