Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Investing lessons from the 1987 Stock Market Crash From Who Beat it - 20th Oct 19
Trade Wars: Facts And Fallacies - 20th Oct 19
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Investor Profit Opportunity in Hong Kong's Unrest

Stock-Markets / Hong Kong Oct 05, 2014 - 10:38 AM GMT

By: Money_Morning


Keith Fitz-Gerald writes: Most investors haven't got a clue about what Hong Kong's riots represent, let alone the investment potential that's being unleashed there. As a result, they're going to miss out on some really terrific profit opportunities.

Hong Kong is like an onion. Returned from a century of British rule to Beijing on June 30, 1997, there are layers and layers of subtleties. For most westerners, the place is a complete enigma.

For me, though, it's an economic playground. I've been very fortunate to have spent almost my entire career in global markets including a lot of time on the ground in Asia, so I am intimately familiar with both the culture and the perspective that can't be obtained by watching only Western news feeds.

It's this background that provides the ability to peer through the government and market filters, and find what I believe are solid niches for profit, even in the midst... and dangers... of the turmoil.

Indeed, understanding what's driving the unrest is our key...

Beijing's Response Is Muted... For Now

Contrary to what many in Hong Kong's elite circles like to believe, the world does not revolve around them. Beijing is the true power base.

So far, Beijing has demonstrated remarkable and unprecedented restraint in dealing with the protestors. What's happening in Hong Kong wouldn't be tolerated in mainland China for a nanosecond. Beijing will not hesitate to roll in the troops if it believes the Communist Party is threatened, even if it means they have to squash the "Capitalist" party now taking to the streets.

That said, the Central Committee is acutely aware of the stakes.

"Hong Kongers," in their arrogance, don't understand this. A century of British rule has led many to mistakenly believe that they are economically, politically, and morally superior to the mainland's "bumpkins." It's a serious lapse in judgment that has become a part of the cultural fabric over time.

The irony is that Beijing decided years ago - long before the handover - that Shanghai's financial markets are China's future. So they have largely left Hong Kong alone because it is a useful source of foreign capital and currency. Doing so conveys "face," a uniquely Asian concept incorporating the combination of influence, honor, social standing, and reputation.

But that's changing by the day as Hong Kong's markets become further marginalized and Shanghai's exchanges become increasingly modernized. Saving "face" becomes less important if Hong Kongers are willing to "de-face" Beijing by demonstrating in the streets.

You can see that very clearly in the indices of both, which have diverged considerably over the past month as the protests have gathered steam. The Hong Kong-based Hang Seng Bank has lost 7.34% while the Shanghai Composite has gained 4.32% over the same time period.

If anything, further rabble-rousing in Hong Kong only solidifies Beijing's decisions. Further, the money being lost in Hong Kong's markets is irrelevant to Beijing's way of thinking with each new demonstrator taking to the streets

Remember, we are talking about a divide between the Communist Party and the "Capitalist" party... NOT the democracy the Hong Kongers are protesting and NOT the financial markets that western analysts believe.

To that end, if this really goes to the mat - and I think it will - there are going to be a number of things happening. And that brings me to your money...

Hong Kong's Weakness Will Benefit These U.S. Giants

First, these riots are going to resurrect the world's perception of the political risks of doing business in China. That's going to cause many big brand names to rethink their business there no matter how potentially lucrative and essential it is to future growth.

Second, property and casualty companies are going to take the first hit. Simply put, property values drop where there's political instability. Companies like Sino Land Co. Ltd. (HKG: 0083) and New World Development Co. Ltd. (HKG: 0017) are primed for a tumble. And so is some of the world's most expensive real estate.

That, in turn, will affect the financial houses who have long called Hong Kong home. Financial giants like HSBC Holdings Plc. (HKG: 0005) are going to get whacked because of the impact on earnings, so shorting the entire financial sector or specific companies like HSBC could be a really terrific way to capture this. So could buying long date put options that limit your risk while still giving you tremendous upside.

To give you an idea of the magnitude of the potential for profit, consider this: The Hong Kong market is worth some $3.7 trillion, and 56% of the Hang Seng is related to financial shares.

Closer to home, a failure in Hong Kong has the potential to hit pension fund and individual investors holding global ETFs with an emphasis on Hong Kong like the iShares MSCI Hong Kong ETF (NYSE Arca: EWH). So you'll want to take one basic precaution: If more than 20% of your investment in any given global instrument is tied to Hong Kong, I'd rethink that level of exposure. And, if needed, consider rebalancing in order to minimize risk.

Further weakness in Hong Kong is going to make the beleaguered U.S. dollar even stronger than it's already become in recent months. That's going to benefit large cap stocks because they're viewed as a hedge against global economic weakness.

The key here is to stick with companies having large brand names that Chinese consumers recognize, like Procter and Gamble (NYSE: PG) or Johnson & Johnson (NYSE: JNJ).

It's also going to benefit U.S. Treasuries, where the yield on average is 1% or higher than comparable Asian bonds at the moment.

And, finally, anyone who didn't flee Hong Kong in 1997 or just prior to the handover has to be rethinking that decision at the moment. Another wave of expat capital will hit western Canadian cities like Vancouver and Victoria, already expat Chinese enclaves, driving up real estate values. Apartments and condo investments may become even more appealing as a result.

Source :

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules