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Hong Kong protests hit the real economy; worse to come

  • It seems doubtful that, given the hardening of positions, there can be a quick resolution to the situation in Hong Kong

  • What is clear, though, is the growing economic cost, with Hong Kong retail sales already falling by 25.3% yoy in August

  • This slump is having a clear effect on retail and F&B stocks, which are struggling with negative cash flow

Hong Kong protests hit the real economy; worse to come
Stuart Culverhouse
Stuart Culverhouse

Head of Sovereign & Fixed Income Research

Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
2 October 2019
Published by

In the context of the shooting of a protester yesterday in Hong Kong, and the apparent escalation of the protests, we look at the economic and financial repercussions.

It seems doubtful that, given the hardening of positions, there can be a quick resolution to the situation in Hong Kong. Protests have evolved and hardened from their original objection to the extradition law amendment bill to something wider and more fundamental; pro-democracy and universal suffrage. It remains to be seen whether the situation can be resolved through dialogue, not least given the ultimate objective of the protesters is unclear. What might weaken the protest movement is if they lose wider public support by becoming increasingly violent and disruptive.

China, which has been very patient, seems to have been desperately hoping to avoid outright overt control by force, instead seeking to ensure enough daily disruption and chaos that the protests become unpopular and peter out, as they did in 2014. However, the 2014 protests were effectively over after three months; the 2019 edition is now six months’ old and China’s tolerance must now be close to breaking point, especially given the stain on the People’s Republic’s 70-birthday celebrations.  And President Xi Jinping is unlikely to tolerate what is seen as a threat to him and China’s rising power. 

What is clear, though, is the growing economic cost, with just-released figures showing Hong Kong retail sales volumes falling by 25.3% yoy in August (see chart). 

Hong Kong retail sales volume collapses (% change, yoy)

Source: Bloomberg

This slump is having a clear effect on retail and F&B stocks, which are struggling with negative cash flow. Business visitors to Hong Kong are greeted with empty shops and endless lines for taxis. Today, Hong Kong Central saw noisy protests disrupting traffic.

Visits from mainland China were down 42% YoY in August, and in Hong Kong’s shopping district (Causeway Bay), one in ten shops were vacant. September figures, when they are released could be even worse.