Fri, Jun 14, 2019 page10

• Hong Kong protests add to traders’ list of worries

  STOCK MARKET UNCERTAINTY: One analyst said that Beijing’s push for an extradition bill could hurt business prospects, as investors and firms value the territory’s autonomy

  • Bloomberg
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  Hong Kong stock traders have a lot to contend with right now. A trade dispute between China and the US, a slumping yuan, spiking interbank rates and street protests that have spilled across the territory’s financial district in a repeat of 2014’s “Umbrella movement.”

  The last two — rates and protests — have combined to snuff out a nascent recovery in the benchmark Hang Seng Index after last month’s 9.4 percent drubbing. The gauge tumbled as much as 2 percent on Wednesday after the one-month interbank borrowing cost surged to a decade-high and protesters demanded the territory’s government drop a planned bill that would allow extradition to mainland China.

  The index yesterday fell below the 27,000 level briefly. It trimmed the decline to 0.9 percent from as much as 1.8 percent after the government postponed for a second day a meeting to discuss the bill and the one-month interbank borrowing cost extended its advance.

  There is little visibility right now on how these issues might be resolved. Few expect progress on trade negotiations before the G20 meeting at the end of the month, while analysts increasingly say that China would allow the yuan to weaken past a level it has not breached since the global financial crisis.

  That is bad news for Chinese companies listed in Hong Kong, whose earnings are generated in yuan.

  “The market worries that the social unrest in Hong Kong may lead to an outflow of funds,” Prudential Brokerage Ltd (信誠證券) associate director Alvin Cheung (張智威) said.

  “There’s a good chance the Hang Seng Index will continue to decline. The progress of the extradition bill and the meeting between [US President Donald] Trump and [Chinese President] Xi [Jinping (習近平)] at the G20 will be the two key factors influencing the market trend,” Cheung said.

  With Beijing backing the law, observers said that the issue could have a detrimental effect on the mainland.

  “Beijing’s push for this extradition bill could prove costly as investors and businesses value Hong Kong’s autonomy,” Oanda Corp senior market analyst Edward Moya said.

  “Uncertainty with Hong Kong’s autonomy will dampen business prospects and put a further strain on Chinese growth. If the US and Europe become involved it could complicate relations and future trade deals,” Moya said.

  Hong Kong has also come under pressure from the international community, with the EU saying the proposed law had “potentially far-reaching consequences for Hong Kong and its people, for EU and foreign citizens, as well as for business confidence in Hong Kong.”

  The amount banks charge each other to borrow cash — known as the Hong Kong Interbank Borrowing Rate — yesterday extended its recent rise to a fresh 11-year high, as cash is sucked out of the financial system. The gains saw the local dollar hit a six-month high.

  While the withdrawals are expected at this time of year for various seasonal reasons, as well as preparations for initial public offerings, analysts said that the protests were also having some effect.

  In 2003 and 2012, demonstrators succeeded in forcing the government to climb down on unpopular bills related to national security and patriotic education.

  Massive protests in 2014 aimed at achieving greater democracy for the former British colony fizzled out in failure after more than 70 days of sit-ins. Those protests, which caused widespread traffic disruption, helped damp stock market sentiment — the Hang Seng Index fell about 2 percent during the period.

  Additional reporting by AFP
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