Concerns about capital flight from Hong Kong

Concerns about capital flight from Hong Kong 3

Concerns about capital flight from Hong Kong

Hong Kong’s economy has been in recession since last year, due to protests against the extradition bill.

China has approved the construction of a Hong Kong security law.

Many foreign investors and business leaders are waiting for details of China’s new security law and the US response, to assess how this affects Hong Kong.

People wear masks on the streets of Kwun Tong (Hong Kong).

`Investors are clearly worried about this issue,` Timothy Moe, Asia-Pacific equity strategist at Goldman Sachs, said earlier this week. `Politics will still be the market’s first factor.`

US President Donald Trump is considering a series of sanctions against China over the Hong Kong issue.

However, so far there are few signs that capital flows are massively leaving Hong Kong.

Hong Kong does not control capital as tightly as China, but allows currency to circulate freely.

Teresa Kong – Portfolio Manager at Matthews Asia said that this depends a lot on how security laws are implemented.

Currently, Hong Kong’s role as a source of capital, favorable business environment and highly qualified workforce are very strong factors that China must consider.

However, no one can measure exactly how much capital comes and goes from Hong Kong.

Changes in liquidity in the interbank market are the most visible indicator of pressure on capital flows.

Rapid withdrawals of deposits or reverse investment cash flows will drain confidence in this economy.

The weakening Hong Kong dollar also reflects capital outflows.

And on the stock market, when Beijing proposed a security law proposal on May 22, the MSCI Hong Kong index dropped 6.9%.

Hong Kong officials, such as financial leader Paul Chan, are still allaying concerns that China’s move threatens the financial industry here.

Others warn that the lines between political tensions and free enterprise are increasingly blurred.

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