Hong Kong protests knock investor confidence in city’s shares

Hong Kong stocks were poised for their worst drop in six weeks on concern the city’s prolonged protests will take a toll on the local economy.

The MSCI Hong Kong Index dropped 1.8% as of the mid-day break, its fourth day of losses, on volume that exceeded the daily average of the past three months. Developers were among the biggest decliners, with Swire Properties leading with a 4.5% drop. Link Reit, Wharf Real Estate Investment and New World Development Company were down more than 3%. MTR, which operates the city’s railway system, lost 3.7%.

Read: Hong Kong protests may hit retail rents as shoppers avoid city

Hong Kong’s financial markets have been relatively resilient to the unrest, with the MSCI measure still up 12% this year. But with an eighth straight weekend of protests keeping local shoppers away from stores and overseas visitors canceling their trips, global luxury retailers have been feeling the impact. The pain is likely to spread to the city’s retail landlords.

“Compared with the past political events, this round is the worst in Hong Kong so far,” said Shaun Tan, UOB Kay Hian analyst in Hong Kong. “It’s still very difficult to forecast the long-term impact. There will be lots of pressure on the retail sales given the recent political events. Sales of large residential units can also be coming down due to that.”

Police deployed tear gas and rubber bullets throughout downtown Hong Kong Sunday to clear thousands of protesters. The Hong Kong and Macau Affairs Office, which reports to China’s cabinet, will hold a news briefing on the unrest at 3 p.m. local time Monday.

“The events over the weekend show that the government seems to be unable to control the situation,” said Jackson Wong, asset management director at Amber Hill Capital. If China says it is “coming to help, it would be a big negative to the market due to the speculation about the People’s Liberation Army.”

Investors were also cautious at the start of a week that will feature the resumption of US China trade talks and an expected Federal Reserve interest-rate cut, said Wong.

Casino operators were among the biggest decliners Monday, with Wynn Macau and SJM both falling more than 3%. A Bloomberg gauge of casino stocks fell 2.2%.

Mainland stocks also edged lower, with the Shanghai Composite Index dropping 0.1%.

© 2019 Bloomberg L.P.