Caixin
Aug 13, 2019 07:31 PM
FINANCE

Unrest Deflates Hong Kong Stock Market

Hang Seng China Enterprises Index of Chinese firms had lost 16% since its April high as of Tuesday morning. Photo: VCG
Hang Seng China Enterprises Index of Chinese firms had lost 16% since its April high as of Tuesday morning. Photo: VCG

Hong Kong stocks have lost more than one-tenth of their value over the last month, including a 2.1% decline on Tuesday, as investors fret about the city’s future after two months of unrest over local governance.

At its current level, the benchmark Hang Seng Index now trades at about the same level where it began the year, wiping out a 20% rally that kicked off 2019 in tandem with a similar rise in stock markets on the Chinese mainland.

The Hang Seng China Enterprises Index of Chinese firms has lost 16% since its April high as of Tuesday morning, not far from entering a technical bear market. The MSCI Hong Kong Index fell 2.1%. The gauge has fallen 14% since mid-July.

Hong Kong has been in a state of unrest since early June, with large numbers of citizens protesting local governance. Most recently the unrest has spread to Hong Kong International Airport, the world’s eighth busiest. Protests in the busy facility continued with a mass sit-down on Monday afternoon. The entire airport was closed, leading to the cancelation of nearly 200 flights.

Hong Kong’s flagship carrier Cathay Pacific Airways Ltd. has been among the hardest hit by the latest unrest. The company has received several warnings from China’s aviation authority asking it to stop its employees from engaging in illegal activities. Its stock dropped 2.6% on Tuesday and is down 8.5% over the past week.

Its parent Swire Pacific Ltd. is down by an even larger 10% over the last week, as it faces exposure not only from canceled flights but also its large retail and office property holdings that are also coming under pressure due to demonstrations. The Civil Aviation Administration of China said on Monday that its Deputy Director Cui Xiaofeng had met with Swire Chairman Merlin Swire but didn’t provide any details.

The unrest has also taken a toll on bonds issued by the Hong Kong airport operator. As an example, the yield for a 15-year bond from the operator due in 2021 rose to 2.070% from 1.959% in the day and a half of trading from Monday to mid-Tuesday, representing a gain of 11 basis points. Rising yields typically reflect falling bond prices as investors worry about the issuer’s ability to repay its debt.

By comparison, shares of airport operators in the nearby Pearl River Delta area on the Chinese mainland performed well, as investors bet they might benefit from the disruptions at Hong Kong airport. Shenzhen Airport Co. Ltd. rose by its daily limit 10% on Tuesday, while Guangzhou Baiyun International Airport Co. Ltd. gained 4.5%.

Additional reporting by Bloomberg

Contact reporter Yang Ge (geyang@caixin.com; twitter: @youngchinabiz)

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