Reit at head of protest parade

PUBLISHED : Wednesday, 15 December, 2004, 12:00am
UPDATED : Wednesday, 15 December, 2004, 12:00am

A High Court ruling has allowed Hong Kong's US$3 billion reit to proceed, sparing the government a huge scandal and delivering only a modest dose of embarrassment.

But if the Tung administration continues down this accident-prone path, investors may begin weighing in political risks when assessing their Hong Kong plans.

In financial terms, this translates into less money assigned to Hong Kong equities by international money managers. When bungling politicians become more important than economic fundamentals, professional investors tend to take a step back.

A common strain in both the Hunghom Peninsula demolition debacle and now the reit fiasco is a dysfunctional political system that provides mechanisms for only complaint, not participation.

Ratings agency Moody's raised such concerns in May, noting how dissatisfied popular aspirations could damage investor confidence and undermine the government's ability to address critical issues such as the budget deficit.

Today, with the stock and property markets buoyant and the economy robust, such worries might appear misplaced.

Political risk might normally conjure images of rioting in Indonesia or coups in Philippines. But it can also be the less dramatic sort that allows unforeseen events to disrupt normal economic function.

If our government luminaries had adopted a less high-handed, more transparent approach over the reit, the damage to Hong Kong's reputation could have been avoided.

It is easy to see how Director of Housing Leung Chin-man's action to blithely ignore questions of legislators Albert Cheng King-hon, Chan Wai-yip and 'Long Hair' Leung Kwok-hung at the reit press launch acted as a bait to ensure a court challenge.

Moreover, the subsequent handling of the IPO allocation only served to fuel suspicion that small investors were getting a raw deal. Secretary for Housing, Planning and Lands Michael Suen Ming-yeung defended the policy saying that a 90:10 allocation - or even 95:5 - between institutional and retail investors was the norm all over the world.

The eventual decision to allocate 65 per cent to retail investors to foster 'social harmony' had a hollow ring, coming only after the launch of a legal challenge which called into question the whole listing.

Whether justified or not, the outrage over allegedly unfair dealings between the government and business interests is likely to remain. Other pressure groups are likely to be encouraged by signs the government will bow to public pressure, meaning the West Kowloon cultural hub project and utility price rises could also become lightning rods of discontent.

In the absence of a better system more protests look likely, giving ample reason to pause before investing in Hong Kong.