LONDON: Escalating protests this year have led to about US$5bil being pulled from investment funds in Hong Kong – raising the risk that strain in the Asian financial hub could spread to other parts of the world, according to the Bank of England’s (BoE) latest financial stability report.
That figure, equivalent to about 1.25% of the former British colony’s gross domestic product, amounted to a “significant” outlow, the BoE said.
“The protests, and their impact on the real economy, highlight political risk as a key vulnerability in Hong Kong, ” the BoE said. “And these political tensions pose risks, given Hong Kong’s position as a major financial centre.”
HSBC Holdings Plc and Standard Chartered Plc, among the biggest foreign-based lenders in Hong Kong, have said that they have seen wealthy customers in the city opening overseas bank accounts as fears have grown since pro-democracy protests began.
Still, turmoil has eased lately, and a deal to avert a deepening trade war between China and the US has rekindled optimism and stoked demand for assets in the city.
Hong Kong’s currency has posted its longest rally in eight years, boosted in part by foreign funds buying stocks. The city’s benchmark stock index rallied 4.5% last week, though is still the weakest this year among major global markets.
City officials and bankers have said that outflows from the city have been limited, even as the tension pushed the economy into a recession. Output was already under pressure due to waning global demand.
Howard Lee, a deputy chief executive at the Hong Kong Monetary Authority, said late last month that the flows in the city’s currency, which is pegged to the US dollar, have been “pretty balanced.”
The most recent data from the authority showed Hong Kong dollar deposits rose to HK$6.91 trillion (US$887bil) in October from HK$6.88 trillion the prior month. — Bloomberg
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