Beijing’s national security law heightens risk and uncertainty for Hong Kong investors and firms
- The uncertainty generated by a lack of detail in the national security law is expected to lead to further flight of international talent and assets
- The fundamentals of Hong Kong’s economic structure are unchanged, but firms will need to assess the risk of capricious application of national security laws
In 1921, economist Frank Knight wrote a book about risk, uncertainty and profit. Risk is where the outcome is unknown, but it is possible to measure the odds of the risk happening; these are known unknown events. Uncertainty, in Knight’s world, is where the outcome is unknown and it is not possible to measure the odds. These black swan risks are inherently unpredictable even though we know they exist; these are unknown unknowns.
Investors manage risk daily with their buy and sell decisions and live with the possibility of uncertainty. The risk inherent in movements in the oil price can be planned; the uncertainty of a plague creating havoc in the global economy cannot be priced in until it happens.
Having made the rules that permitted fines for non-compliance, sometimes resulting in grandparents being left to die alone, Cummings took the quantifiable risk of passing the virus on to his parents. The problem was not just Cummings’ flagrant disregard of the odds but also the uncertainty with which he had presented the rules without clear advice or authority.