Hong Kong Protests: What They Mean and How to Trade Them

A little brief about Hong Kong and why they introduced the extradition bill

Hong Kong is an important Asian city that operates with the one country, one policy system. The model started in 1997 when Britain handed the city to China and will last until 2047. As a result, the city, which is part of China, operates autonomously with its own government, justice system, and its own currency. Most of the residents don’t see themselves as Chinese.

Because of its strategic location, the democracy form of government, and strong justice system, the city is one of the most financial centers of the world. It is home to many foreign financial firms like Credit Suisse, Goldman Sachs, HSBC, and Morgan Stanley. It is also home to the Hong Kong Stocks Exchange (HKEX), which is one of the biggest exchanges in the world.

Just last week, Alibaba debuted in the exchange, completing its dual listing process with the NYSE.

As a result of its location and the fact that it is home to all these companies, Hong Kong is the most expensive cities in the world. It has a population of more than 7 million people and a GDP of more than $350 billion.

When and why the protests started

In the past two Sundays, Hong Kong has seen increased political unrest. Hundreds of thousands of Hong Kongers have been in the streets, protesting a new bill that will see its citizens extradited to China for the first time.

The origin of the Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation Bill of 2019 was when a Hong Kong resident was accused of killing his girlfriend in Taiwan. He was arrested in Hong Kong but could not be extradited to Taiwan because there was no legal framework to do so.

In response to this, the city’s government decided to create a bill to avoid being a haven for fugitives. Opponents of the bill believe that it will open the door for anyone, including political opponents to be arrested and sent to China, which is not known for its fair justice system.

It will not only apply to Hong Kong residents but also tourists, foreign residents, and people passing through the airports. Over the weekend, the city’s Chief Executive, who has been relatively pro-China withdrew the bill.

Here the PDF from the  Legislative Council

How traders can take advantages

As a trader, there are two main ways for trading the current uncertainties in the city.

First, you can trade the Hong Kong dollar. As mentioned, as an autonomous city, Hong Kong has its own currency. The HKD is usually pegged to the US dollar. As shown in the chart below, the currency has weakened slightly as the protests have been continuing. This has ended the strong gains made in the past month.

HKD Chart

HKD Chart

Another way is to trade Hong Kong stocks. As shown in the chart below, the Hang Seng index, which is made up of the biggest stocks in Hong Kong has been on a downward trend. In the coming days, the declines could continue if the protests continue.

HK Stocks chart

HK Stocks chart

On commodities, Hong Kong is not a major producer and consumer of major commodities, which means that the protests will not have a major impact on the commodities market.

 

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Other Helpful Resources

An Explanation offered by Al Jazeera

A brief guide to issues arising – Hong Kong Bar Association

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