Hong Kong, Democracy and Money

Hong Kong, Democracy and Money

Do you remember the ‘Umbrella Revolution’ in 2014?

This was when Hong Kong protesters took to the street to fight for their democratic right to vote for their own governor in Hong Kong.

The protesters of the ‘Umbrella Revolution’ were mostly young. Their movement eventually faltered and Hong Kong was returned back to ‘law and order’.

Behind it was Beijing’s strong hand, unwilling to yield to any pressure to push for democracy in or out of Hong Kong.

Bad blood has been brewing inside Hong Kong since 1997, when the region was restored to Chinese sovereignty. Hong Kong’s youth, in particular, do not want to be part of the authoritarian regime that is China.

They deem China as a backward communist country; they deem Chinese people as different from themselves and as inferior. Many even despise them.

On the other hand, Hong Kong’s elders and the adult population are quite happy to sit on the economic boom China’s rise has brought them. Real estate, retail, tourism and finance are just some of the key sectors that have thrived in Hong Kong because of Chinese money.

Since the revolution

A lot has happened since the end of the ‘Umbrella Revolution’.

The most striking has been the harassment by Hong Kong protesters against Chinese shoppers in Hong Kong.

I don’t put quotation marks around ‘harassment’, because if a woman and her small child are being encircled and verbally attacked by an angry mob, that qualifies as harassment in my book.

Harassment aside, Chinese shoppers have earned a bad name for themselves in Hong Kong. And it is the fault of a large number of opportunists. On a daily basis, individuals travel from Shenzhen to Hong Kong to bulk-buy goods.

They then return to Shenzhen to resell these goods at a profit. This has resulted in the short supply of goods in Hong Kong.

Mind you, this is not an isolated event. Chinese overseas students have been particularly active in carrying out the same thing in Western countries.

I have such a friend in Sydney. She is making thousands just by buying Australian products and selling them to her Chinese friends.

That is a true testament to the consumption power of Chinese shoppers.

But back to Hong Kong.

Videos emerged on Wechat (China’s Facebook), of tourists and shoppers being harassed in Hong Kong by organised protesters. Needless to say, this has fuelled the ‘bad blood’ even more. Except this time, the mainlanders decided to act.

What’s changed?

There are three things worth mentioning in terms of the ‘Hong Kong versus China’ situation.

One, the ‘Umbrella Revolution’ failed. Hong Kong protesters now understand that an uprising would not work. What they have decided to do instead is to resist anything that is Chinese. That would naturally include Chinese shoppers and tourists.

The second thing that has changed is the mainlanders’ attitude towards Hong Kong.

During the ‘Umbrella Revolution’, most Chinese did not care for the uprising. They still travelled to Hong Kong for their October ‘Golden Week’ holiday. Most Chinese were amused by the situation. However, that has changed.

Since the harassment incidents, the mainlanders have sensed a clear and deep animosity against them from the Hong Kong side.

I am talking about the kind of language these protesters said, such as ‘go back, you dirty Chinese’, ‘go away, and back to China’. Of course, in reality it was much, much ruder than that.

I am talking about the images of protesters proudly waving the old Hong Kong colonial flag.

Imagine all that captured in high-definition multimedia formats and spread to every cell phone in China. To the mainlanders, this is when they decided something had to be done about it. Naturally, they decided to ‘sanction’ Hong Kong.

Since the ‘Umbrella Revolution’, Chinese visitors have shunned Hong Kong. Tour groups plunged 80% in March 2015. Retail sales fell 2% in the first two months of the year.

Finally, the Chinese government will ‘seal the fate’ of Hong Kong’s tourism and retail sectors.

The Shenzhen government will soon restrict residents to one Hong Kong visit a week, down from an unlimited number of trips.

Last year, 47 million Chinese visitors went to Hong Kong. That’s six times Hong Kong’s entire population. Those 47 million visitors no doubt provided a major boost to Hong Kong’s economy. To restrict it is to ‘sanction’ Hong Kong.

Of course, it is not an official sanction, since this is what the Hong Kong protesters theoretically wanted to achieve.

The moral of the story

What is the moral of the story? What do you take away from all this?

To me, it doesn’t seem all that unnatural.

It is natural for Hong Kong’s protesters to fight for democracy. It is natural, if unpleasant and aggressive, for them to ‘harass’ the Chinese bulk-buyers to voice their discontent. It is also natural for the mainlanders to respond to the animosity in kind.

If you want to be deep about it, you can say it is a clash of history, a clash of ideologies, a clash of culture, and a reshuffling of power.

In the short term, Hong Kong’s tourism and retail sectors will be ‘sanctioned’ by mainlander visitors. Mainland travellers are heading to places like Korea, Japan, Malaysia, Thailand, and Australia as an alternative.

In the long term, the economic realities will make Hong Kong’s protesters think twice about their actions. Eventually, things will return to normal.

The fact that Beijing didn’t really do anything to crack down on the ‘Umbrella Revolution’ doesn’t mean they enjoyed it.

But the truth is Beijing doesn’t need to do anything, because the ‘invisible hands’ would do it for them.

On the bright side, whatever is dampened on the tourism and retail side is being picked up by the finance side.

The through-train is in full speed and is allowing Chinese money to structurally change Hong Kong’s equity market landscape. This will no doubt extend to the credit market and derivatives.

Just last week, the Hong Kong market achieved some astonishing gains. Over a one month period, the Hang Seng index grew more than 12%.

This completely destroys the ASX200 performance in the same period, which was less than 0.5%.

My New Frontier Investor service had one infrastructure-related company achieving a 174.6% gain, and another automobile producer achieving a 90% of gain. The net gain of the entire New Frontier Investor portfolio is now more than 30%. To learn more, click here.

For your investment advice, buy Hong Kong tourism and retail sectors when they sink to the bottom and buy the Hong Kong market for the long term. There are several ETFs that track the China and Hong Kong market, but choosing individual stocks will be more profitable going forward.

Regards,

Ken Wangdong,
Emerging Markets Analyst, New Frontier Investor

 

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