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The View | Hong Kong is a test case of how much political risk investors can stomach
- Even as the unrest persists and the violence escalates, markets do not believe the crisis will have systemic impact. But that may change if the protests become linked to the trade war, despite Donald Trump’s hopes for a limited trade deal
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The unrest in Hong Kong has been spiralling out of control for some time, but the violence and disorder last week took the five-month-long crisis to a new level, putting the territory’s previously resilient currency and money markets under strain.
Such is the scale and ferocity of the brutality on the city’s streets that it is difficult to reconcile Hong Kong’s descent into chaos with a financial centre that is hosting Alibaba Group Holding’s mammoth secondary listing, the biggest share sale in the territory in nearly a decade.
While markets and political crises often exist in parallel worlds – a disconnect that has become much more pronounced since the world’s leading central banks flooded the financial system with cheap money, distorting asset prices and desensitising investors to risks – Hong Kong has emerged as a test case for investors’ tolerance level for social unrest.
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In a sign of the extent to which protest movements the world over are a source of mounting concern, Dan Ivascyn, the chief investment officer at Pimco, an asset manager, told delegates attending last week’s Reuters Global Investment Outlook 2020 Summit in New York that “at these quite stretched market valuations it causes us pause and leads us to be more cautious than we would be otherwise”.
In its latest outlook for the world’s sovereign credit ratings published last week, Moody’s noted that an “antagonistic political environment” is “weighing on [the] institutional strength [of many sovereigns], with policymakers increasingly constrained”.
Hong Kong is just one of several economies suffering large-scale social unrest. Over the past several weeks, Chile, Latin America’s wealthiest nation, has suffered weeks of mass protests, forcing the government to overhaul the country’s constitution amid a plunge in the peso, Chile’s currency, to a record low against the US dollar.
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