Hong Kong’s famous Victoria Peak offers both an iconic view of the city as well as a metaphor for the events of the last week. With a name reminiscent of its British history, everything looks peaceful from on high. But at street level, it’s a very different view.

The throngs of protesters from the Occupy Central democracy movement have been thankfully peaceful. Still it’s hard to say what markets will make of the situation.

Hong Kong’s main stock index – the Hang Seng Index – hit a three-month low this week. Other Asian equity markets have also fallen this week, primarily on weak global data and following U.S. equities lower.

The Hong Kong dollar reached its weakest position against the U.S. dollar since March of this year, but the currency is heavily managed within a trading band monitored by the Hong Kong Monetary Authority (HKMA). Also, as we have been discussing for weeks now, the U.S. dollar is beating up on most other currencies as markets price in higher interest rates in the U.S.

It’s fair to say that there is some concern in the global economy about Hong Kong, but honestly there is not very much. Up until a few years ago, geopolitical disturbances resulted in significant market downturns. Today, the assumption is that it will all work out, and in Hong Kong’s case, students will peacefully dissolve and the territory can go back to what it does best – making money.

Such a sanguine view most likely doesn’t come from careful analysis as much as from simple hope – and hope is not a strategy. The reality is that unscripted, emotional, geopolitical developments always have the potential to become a powder keg and explode, and when economic livelihoods are suddenly threatened, markets are quick to react.

Our View: Stability will eventually reign, as that is one of the ultimate goals of the Hong Kong people. But geopolitical disruptions do not always end in smiles, and the markets need to bear that in mind.

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make an independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

 

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make an independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.