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Hong Kong withstands protests with only a trickle of ‘fright capital’ fleeing to Singapore, MUFG Bank estimates

South China Morning Post

發布於 2019年12月16日10:12 • Enoch Yiuenoch.yiu@scmp.com
  • Hong Kong may have suffered US$6 billion in fright capital to Singapore ‘at most’ from May to October as protests intensified, MUFG estimates
  • Scale of outflows not large enough to warrant serious concern yet, though further leakage cannot be ruled out if violence persists
Hong Kong riot police officers walk past a Bank of China branch which has been vandalised by anti-government protesters. Photo: AFP
Hong Kong riot police officers walk past a Bank of China branch which has been vandalised by anti-government protesters. Photo: AFP

Hong Kong's financial system is withstanding the city's worst political crisis, with only a trickle of deposits fleeing to rival financial hubs like Singapore even as months of street protests have driven the economy into a recession.

At most, US$6 billion of "fright capital" may have left for Singapore between May and October as anti-government protests intensified, according to MUFG Bank, a unit of Japan's biggest financial services group said in a December 12 report.

The amount is estimated from a corresponding surge in foreign-currency deposits of S$8.4 billion (US$6.2 billion) in the Southeast Asian nation's banking system in the period, the bank said.

The amount represents about 0.34 per cent of HK$13.73 trillion deposits in the local banking system at the end of October, according to data published by the Hong Kong Monetary Authority, suggesting the size of capital leakage stoked by social unrest is not worrisome.

"Our assessment remains that the scale of outflows to date has yet to be large enough to warrant serious concern," Cliff Tan, East Asian head of global markets research, said in the report. "We believe the unfortunate violence of November 2019 will further push more capital out of Hong Kong."

Hong Kong retail sales suffer worst decline on record amid protests and US-China trade war

Hong Kong's economy fell into a technical recession last quarter as protests caused an unprecedented slump in retail industry that relies on tourist spending. Visitor arrivals slumped 43.7 per cent in October and the Hong Kong International Airport reported a loss of more than 1 million passengers in November.

The impact on the financial system, though, has been less dramatic relative to recent past crises, given historical outflows associated with its role as a global financial centre and a "well-behaved" money market rates so far this year, Tan said in the report.

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The three-month Hong Kong interbank offered rate stands at about 2.36 per cent, according to Hong Kong Association of Banks, compared with 2.08 per cent at the end of April. Three-month Hibor fixings peaked at 16.57 per cent during the speculative attack on the currency peg in 1998. A 4 per cent level should start to worry the market, he suggested.

"The bottom line is Hong Kong is a major world financial market, so while protest outflows matter, so do a lot of other outflows and inflows, and if flows are more balanced than occasional market fears, the result is a fairly well-behaved Hibor despite fears," he said.

Hong Kong may have lost US$4 billion of capital to Singapore in summer, Goldman Sachs says

While anti-government protests have targeted businesses with alleged mainland political ties, the irony is that capital inflows from China have helped shore up the system in Hong Kong, Tan said in the report.

Chinese institutional investors have invested in the city's capital market amid months of social unrest, including their sizeable participation in Alibaba Group Holding's US$12.9 billion secondary offering last month. That may suggest Hong Kong still serves some useful purposes as a centre for fundraising.

Alibaba owns the South China Morning Post.

"It would probably not be in the mainland's own interests to allow Hong Kong to atrophy and lose its international financial centre status," he added. "Hence, Chinese capital might reasonably be expected to act as a countervailing flow in the event of fright capital leaving Hong Kong."

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.

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