No need for investors to panic, Hong Kong will bounce back, as it always has

Hong Kong’s reputation has taken a hit but there is no need for investors to start thinking about pulling out. It is in Beijing’s interests not to mess with the city’s commercial freedoms

Richard Harris

Published: 9:00am, 12 Jul 2019

Why you can trust SCMP

Unprecedented protest marches. Violent vandalism of public property. Anger in the streets. Legal interpretations changing long-held precedents. Is this the end of Hong Kong as we know it?

None of what we have seen on the streets is unusual in the rest of the world. Huge weekend marches are the stuff of most Western capital cities, whether they are about pride, poverty or parades. Protest assemblies are a regular occurrence on the mainland, even though they are not on the news every night.

It is not uncommon for discontent to descend into protest vandalism in elegant cities such as Paris and London. When frustrated young people, or working-class high-visibility jacket wearers get emotional in a crowd, we often see the red mist descend onto otherwise decent people who become thugs for the night. Welcome to Saturday night after a big local football derby.

While there are no excuses for scaring people with bricks and poles – including, apparently, our highly-trained police – we should remember that this kind of thing happens elsewhere. It is not something that we are used to in non-confrontational Hong Kong. When wide public discontent like this does begin to develop, it is normal for investors to reconsider the risks of their investments.

I wrote after the first million-person march that funds might move out of Hong Kong to other jurisdictions such as Singapore and it is now widely reported that clients are asking their bankers about other jurisdictional options: “My great-grandfather lost everything to the Communists. Should I not learn from that?”

Hong Kong (like the European Union) boasts four freedoms: the ability of capital, services, goods and labour to move freely. The latter is less free in the medical community, which is noted for retaining an unnecessarily closed shop to prevent competition – and to keep fees sky-high. It is an enduring irony that the government is willing to take on the students but not the doctors.

Hong Kong has an extra two freedoms: the rule of law (as interpreted by independent judges), and freedom of the press. Many other Asian cities have tacitly swapped civil liberty for economic prosperity. Hong Kong has had both. The government hitherto has barely interfered in the economy (except for regulation and in times of stress) and this makes Hong Kong a particularly attractive jurisdiction for international business.

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Mess with the existing successful system at your peril. The government cannot look further than the mirror when looking for someone to blame. However, the extradition bill is yesterday’s issue – we have moved into a place where people have no confidence in the government at all.

There is an excellent mantra in investment, which is that if you are going to panic, then panic early. Investors will be saying, “I’m sure nothing is going to happen to Hong Kong, of course not… but why should I take the risk?” However, those who are writing Hong Kong off at this point are panicking way too early.

Moving your cash takes just a couple of clicks of a mouse. Investment accounts take more effort to expatriate. Rearranging a real-estate portfolio means selling up completely. Moving away from friends and family is even harder. Do we really think that Armageddon scenario is likely to happen? Any time soon?

Legitimate funds in Hong Kong banks are safe and well-regulated. The Hong Kong dollar is not going to lose its peg to the US dollar either by accident or design. Property prices may well suffer as a result of Beijing’s interference, the government’s inactivity, and the people’s marches. If they do, Chinese investors will snap up bargain Hong Kong real estate.

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The grass is always greener. We should not forget that even if Hong Kong looks a little less attractive to many, to others it is an excellent place to keep your money. You do not want to move everything out and find that you are in a jurisdiction no better than the last. Selling out too early is just as bad.

The logical conclusion is that it will be a long time before the six freedoms will have eroded to where it seriously affects Hong Kong as an international financial centre. Commercial law and judgments are likely to remain intact and unsullied for the foreseeable future, regardless of political adjustments.

There is just too much at stake to mess around with Hong Kong’s commercial freedoms

Hong Kong has recently taken a reputational hit, but it also did in 1966 and 1967, and in the few years leading up to the 1997 handover. Confidence is very easy to lose and very hard to gain – but it is reversible. If things go quiet for a couple of years, which is in Beijing’s interests, sentiment will bounce back.

There is just too much at stake to mess around with Hong Kong’s commercial freedoms. Realistically, our economic, commercial and financial position is unlikely to fundamentally change for a decade.

Chinese money likes Hong Kong because it is not China and yet it is China. The government’s overriding ambition should be to not prematurely change that truth.

Richard Harris is the chief executive of Port Shelter Investment, a veteran investment manager, banker, writer and broadcaster, and financial expert witness

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