Hong Kong protests knock investor confidence in city's shares

Demonstrators gather in the Causeway Bay district of Hong Kong on July 28, 2019. Hong Kong stocks were poised for their worst drop in six weeks on July 29 on concern the city's prolonged protests will take a toll on the local economy. PHOTO: BLOOMBERG

HONG KONG (BLOOMBERG) - Hong Kong property stocks are turning into the biggest casualties of the city's escalating street protests as investors worry about the economic impact and Beijing's response.

Swire Properties Ltd and Wharf Real Estate Investment Co slumped more than 4 per cent to lead declines on the MSCI Hong Kong Index on Monday (July 29), which retreated 1.8 per cent. Volume on the gauge already topped the daily average for the past three months. Link REIT and New World Development Co also slid before a rare briefing by China's top office for Hong Kong affairs.

Hong Kong's financial markets had been relatively resilient to the unrest, with the MSCI measure trading on Friday less than 5 per cent away from its record high. But after an eighth weekend of protests saw police again firing tear gas and rubber bullets in downtown Hong Kong, investors are turning more cautious.

"Compared with the past political events, this round is the worst in Hong Kong so far," said Shaun Tan, UOB Kay Hian analyst in Hong Kong. "It's still very difficult to forecast the long-term impact. There will be lots of pressure on the retail sales given the recent political events. Sales of large residential units can also be coming down due to that."

The social unrest is affecting Hong Kong's economy, Financial Secretary Paul Chan said on his blog. Some global luxury retailers said in recent weeks the unrest weighed on sales due to store closures and fewer tourists.

The Hang Seng Properties Index tumbled 2.4 per cent, poised for its worst loss since June 12. The measure is down 11 per cent from this year's high. Swire headed for its worst decline this year, while New World slid to its lowest level since January.

With Hong Kong's leader Carrie Lam keeping a low profile, investors are looking to see what the Communist Party will do to maintain public order.

The Hong Kong and Macau Affairs Office, which reports to China's cabinet, scheduled a news conference at 3pm on Monday in Beijing, which the South China Morning Post newspaper said was a first since the end of British colonial rule in 1997.

"The events over the weekend show that the government seems to be unable to control the situation," said Jackson Wong, asset management director at Amber Hill Capital Ltd. If China says it is "coming to help, it would be a big negative to the market due to the speculation about the People's Liberation Army."

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.