The Week Ahead (August 12-16), Hong Kong’s Growth Beset By Trade And Turmoil

Investors in the week ahead will receive an update on Hong Kong’s economic growth rate, while ongoing protests and rising U.S.-China trade tensions have been generally taking their toll on the territory.

China’s central government has been recently applying more pressure on Hong Kong’s local authorities to stem the swelling wave of protests that, to date, have only intensified. The unrest has risen to the point where there have been reports of potential intervention by Beijing.

Against this backdrop, Hong Kong equities – as evidenced by the iShares MSCI Hong Kong ETF (NYSEARCA: EWH), which has among its top holdings life insurance giant AIA Group (OTCMKTS: AAGIY) and multinational conglomerate CK Hutchison (OTCMKTS: CKHUY) – have plunged more than 14.6% from their most recent 52-week high set in April 2019.

Since July 19, the ETF has fallen 12.3%.

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The protests, which were ignited in early June, were initially in response to Hong Kong’s proposed legislation earlier in 2019 to form legal extradition from Hong Kong to mainland China. While the Security Bureau’s plans have since been shelved, the movement has generally morphed into a groundswell of demands for broader democratic reforms.

Hong Kong has been operating as a semiautonomous territory of China under a “one country, two systems” principle, which had been established in connection with Britain’s handover, or return, of the land to China in 1997.

Economic Harm

Recent reports of clashes with police, along with a general strike that spurred massive flight cancellations and shuttered restaurants and other local businesses, has eaten away at critical parts of Hong Kong’s economy, including tourism and retail sales.

According to Hong Kong’s Census and Statistics Department, retail sales in June fell by 6.7% year-on-year, underscored by a 17.1% plunge in the purchases of jewelry, watches and clocks, and other valuable gifts.

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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