Hong Kong shares pointed the way in the new week, slumping more than 4% in the worst session for any first day of the month for the Hang Seng in nine years.
It was a “catch down” move (so to speak) coming off a holiday, but it nevertheless bodes poorly.
The city is once again staring down the prospect of heightened tensions between the US and the mainland, and make no mistake, Hong Kong hasn’t seen the last of pro-democracy protests. Monday’s loss erases nearly the entirety of April’s 4.4% gain.
H-shares fell sharply. The Hang Seng China Enterprises index dropped 4.4% in the fourth-largest single-day loss since “Vol-pocalypse” in early 2018.
Data out Monday showed the local economy contracted a record 8.9% YoY in the first quarter. That is a disastrous print, to be sure. Estimates were for a “mere” 6.5% drop. The advance estimate from the Census and Statistics Department suggests the first quarter was worse than the GFC and the Asian financial crisis for the city.
It was the third consecutive quarterly contraction and underscores the notion that Hong Kong, reeling from the trade war and months of social unrest, came into the pandemic in dire economic straits. Mercifully, the city has been spared the worst of COVID-19, but the bustling financial hub will likely never been the same after 2019/2020.
QoQ, the contraction was much worse than expected. The economy shrank 5.3% from Q4, versus the median 1.7% decline economists were expecting.
“Our economic situation is very challenging, we are deep into recession”, Financial Secretary Paul Chan lamented, at a press conference. “Globally the epidemic is yet to be put under complete control. That will affect our exports, international traveling and business investment”.
The city is set to allow movie theaters and gyms to reopen this week, and will likely double the limit on public gatherings to eight from four, in an effort to normalize life following the epidemic.
And yet, as Bloomberg’s David Ingles cautions, “‘normal’ in a Hong Kong context means an extended recession and the prospect of street protests making a comeback”.
Last year, the term “failed state” was bandied about. And with good reason.
“Unlike other economies which may return to normal after COVID-19 subsides, Hong Kong has more challenges ahead”, ING wrote Monday.
“Pro-democracy protesters have returned to the streets and will affect shopping and catering businesses, as they did in the second half of 2019”, the bank went on to say, adding that “unemployment has already gone up in retail and catering, and the protests mean it will take longer for the unemployed to find another job in the same industry”.
Chan doesn’t deny this reality. “Going forward, the second quarter, we believe that even if there is improvement, it will be gradual and small”, he said.
Over the weekend, Chan warned the economy may shrink 7% in 2020, the worst full-year contraction in history.
Via Paul Chan, financial secretary
In fact, Hong Kong’s economy is in a deep recession. Looking back at 1998, Hong Kong was hit by the Asian financial turmoil, and GDP in the third quarter contracted by 8.3% year-on-year. About ten years later to 2009, Hong Kong suffered a negative 7.8% GDP growth in the first quarter due to the global financial tsunami. This year, under the successive blows of violent shock and epidemic situation, the annual GDP growth forecast for the first quarter to be announced will be worse, and it will shrink for the third consecutive quarter. The situation is worrying.
At present, we must also be careful and continue to do a good job of epidemic prevention, which means that local economic activities can only be gradually restored to a limited extent, while the economies of Europe and the United States are still dragged down by the epidemic situation and are weak and difficult to thrive. The International Monetary Fund (IMF) predicts that the global economy will contract by 3% this year, with the United States and Europe alone contracted by 5.9% and 7.5%. The global market is facing perhaps the worst recession since the Great Depression of the 1930s. As a result, the three-horse carriage that drives the economy of Hong Kong, including internal demand, exports and investment, is unlikely to have a significant improvement for the time being. We have revised down this year’s economic forecast by a large margin. The latest estimate is a negative growth of 4% to 7%, far from the originally estimated negative growth of 1.5% to a slight increase of 0.5% in mid-February. If the epidemic develops and the pressure from the outside brings the economic contraction rate closer to the lower limit of the forecast, this will be the worst year for the Hong Kong economy since its record in the 1960s.
In fact, without looking at the numbers, as long as you feel the indifference of the market in the past few months and understand the plight of friends in the service industry, you can already grasp how cold this round of economic winds is. Seeing that the economic environment is extremely severe, we have introduced measures with a total scale of about 290 billion yuan through the Budget and the two rounds of anti-epidemic and anti-epidemic funds to support the public and enterprises to cope with the difficulties. Painful.
In the Budget, I proposed to pay 10,000 yuan per person to all eligible citizens in Hong Kong, hoping to support the citizens and hope to play a stimulating role in encouraging consumption. More than 20 banks will participate in assisting in the payment of funds, and the relevant registration process is also very simple. Citizens with personal bank accounts can apply electronically, which saves the time for document processing and receives money faster. Therefore, citizens who do not yet have a personal bank account should consider opening a personal account with the bank as soon as possible. According to the current timetable, we will accept the registration of eligible citizens at the end of June, and cash will be available in mid-July. It is estimated that most applicants will receive payment by the end of August. If the good trend of epidemic control continues, the restrictions on different industries will be gradually relaxed. At that time, the general public will increase consumption together. It is believed that it will bring income improvements for wage earners and SMEs, and will gradually rejuvenate all walks of life.
However, for the economy to recover its momentum, or even step into recovery, it needs good and favorable conditions-a stable and peaceful social atmosphere. At this moment in Hong Kong, “human harmony” may be more important than “time and place”. A hundred days of anti-epidemic depends on the people of Hong Kong being able to work together in the same direction and achieve results. To save the economy, can we repeat this successful recipe?
May 3, 2020