Hong Kong’s economy has so far weathered the protests and US-China trade war, but anti-mask law may be the tipping point

Hong Kong is not Argentina – its financial buffers are strong and the damage of the past few months is not permanent. But the mask ban could signal tougher measures to come, undermining confidence at an especially ominous moment

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A protester wears a gas mask in defiance of the city’s anti-mask law on October 6. Photo: Bloomberg

Published: 6:30am, 8 Oct 2019Updated: 6:34am, 8 Oct 2019

The charge of complacency is not one that can be levelled against equity investors in Hong Kong. Since its peak on May 3, the Hang Seng Index has plunged more than 14 per cent, with over half of the decline occurring in the third quarter, the worst quarter for the gauge in four years.

The Hang Seng is the only stock market among advanced economies to have slipped into the red for the year to date, and is expected to suffer its worst earnings recession since the 2008 financial crisis, data from Bloomberg shows.

The triple whammy of an escalating trade war, China’s economic slowdown (the sharp fall in the yuan has hit the revenues of Hang Seng companies, two-thirds of whose sales come from the mainland) and the collapse of Hong Kong’s own economy has led to a sharp deterioration in sentiment.

Still, there have been no signs of panic in the financial system as a whole since the mass anti-government protests erupted in early June.

Hong Kong’s exchange rate peg to the US dollar, the world’s longest-running currency board, has held strong, backed by an enviably high level of foreign exchange reserves. Partly for this reason, there has been no major capital flight, with just a modest month-on-month decline in local currency deposits in August.

Even in the city’s more vulnerable stock market, the Hang Seng is down only 4.2 per cent since the first mass protest was held on June 9.

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