Zico Files : The Stand Off In Hong Kong
The stand-off between the protestors on the streets of HK and the Beijing government has brought back memories of past stand-offs – the 2003 protests in HK and those further in back, in Beijing 1989.
The question is which way will it turn – as in 2003, when the proposed anti-subversion was withdrawn (or rather suspended) or in a worse case scenario, the protestors forcibly removed from the streets. For the record the Chief Executive did step down 6 months after the 2003 protests were resolved.
While it is makes political sense that the government in Beijing cannot be seen to give in to HK, and maintain its absolute hold in the rest of mainland China, I think that that latter option even if considered, cannot be “successfully” implemented in streets of HK.
The intention of the Beijing government to pre-select the candidates from which the people of HK can vote will make the “model” of democracy in HK no different from that in the rest of communist China, i.e. the party/government gives the list of candidates. So one can appreciate why the people in HK view this interpretation of universal suffrage as moving away from the Basic Law which is suppose to allow two systems to operate till 2047. In some sense they are asking for what was agreed at the handover.
Therefore I think there is room for Beijing to manoeuvre and the stand-off will be resolved. The fact that we have not seen protests or reactions in the other China cities lends more optimism. What then happens to the financial markets? Is this just kicking the can down the road? Well it is, and the accompanying political risk premium for HK and China will rise.
There will be more selling pressure in the HK stock market when it re-opens after the holidays. That’s the opportunity to build positions in the markets.
A Bit About Zico
Zico is our in house equity consultant who is currently a private fund manager with more than a fair share awards in the course of his illustrious career.
Having managed both global and also regional themed equity portfolios, he specialises in stock picking that maximises returns for his various absolute return portfolios.