Hong Kong Demonstrations: The Cause and Market Reaction

Demonstrations in Hong Kong are not going away. Here are the causes of this and the Market reaction

In 1997, the British made an agreement with China on the future of Hong Kong. After years of struggle, the British agreed to leave Hong Kong to China, on the condition that the city will operate differently. Today, Hong Kong operates as a special administrative zone.

While it is part of China, Hong Kong has its own currency, its own leaders, and its own justice system. As a result, Hong Kong is viewed as a major gateway to China. Foreign companies, which are afraid of going directly to China establish their offices in Hong Kong first.

In the past three months, Hong Kong has been in the news a lot, but this limelight was all for the wrong reasons.

In this period, thousands of people have been demonstrating in the city. While the demonstrations have been peaceful, there have been some cases of violence. In response to the demonstrations, stocks in the region have been affected.

The chart below shows the performance of the Hang Seng index and that of Cathay Pacific (the flagship airline of Hong Kong).

hong kong chart

Why Hong Kong is on trouble

There are a few primary reasons why these demonstrations have been going on. They were triggered by a government legislation that would allow for extraditions to the mainland China. The goal of the government was to prevent Hong Kong from being a haven of fugitives, who had created crimes in China and Taiwan.

However, the people believe that the bill would allow China to arrest anyone who opposed it. This would include people who were in transit.

While this was the primary cause of the demonstrations, analysts believe that there is more to the demonstrations. A common reason that is usually highlighted is the high cost of living.

While Hong Kong is a highly-successful place, most people are suffering. A key problem is housing, where rents are unaffordable to many people.

For years, Hong Kong has dominated the list of the most expensive place in the world. The average rent of a one-bed room apartment near the city center is more than $2000. The average rent for a three-bedroom apartment is more than $5,000. No other city comes close.

On the other hand, the average salary in Hong Kong is just $2,000. Therefore, most people who work cannot afford to pay rent.

What Causes Recessions and How to Stay Safe

Another reason why Hong Kong is in crisis is because of the increased activities of the mainland China government. Hong Kong residents have long lived in a place that is democratic. This is not the case with China, where the communist party has ruled the country for decades. In the next 28 years, Hong Kong will end being a special administrative location to a communist place.

As such, many young people fear about how this will impact them.

These demonstrations are not going away any time soon unless the government puts in place measures to solve these problems. Therefore, this is not the best time to invest in Hong Kong stocks.

It is also not the ideal time to invest in the Hong Kong dollar, which has been declining as shown below.

A Look at the Best Currency Pairs to Trade

hong kong dollar chart

External useful resources about Hong Kong Demonstrations

  • Hong Kong on brink of recession as protests and trade war take toll - The Guardian
  • Trade war makes China cautious in Hong Kong - ApNews

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