Hong Kong election Q&A: What investors need to know

Hong Kong election Q&A: What investors need to know

As the special administrative region elects its new Chief Executive, how will it impact on property and other Hong Kong investments?

Q: What has just happened?
A:
Hong Kong has just elected its new Chief Executive, Carrie Lam. Ms Lam was previously the deputy to the city’s outgoing leader, CY Leung.

Q: What makes this election unique?
A: Ms Lam was chosen by an election committee of 1,194 members, rather than being chosen by Hong Kong citizens. The committee is made up by members of Hong Kong’s legislative chamber, which includes a mix of elite business and trade professionals.

Q: So what does Ms Lam’s victory mean?
A: Many pro-democracy Hong Kongers protested against the vote, calling the electoral process a “sham”. It’s part of a wider issue surrounding the level of influence officials in Beijing have in the running of Hong Kong. Ms Lam’s main opponent, John Tsang, was the most popular candidate among the public, according to opinion polls. But Ms Lam was widely regarded to be Beijing’s preferred candidate, and her victory is only likely to prompt more unease amongst her opponents.

Q: How long has there been political unrest among some people in Hong Kong?
A: In 2014 Hong Kong saw intense demonstrations calling for free elections and political reform. Known as the “umbrella protests”, thousands took to the streets of Hong Kong to make their voices heard. At the time, Ms Lam defended Beijing’s stance that no political reform should be enforced.

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Image sourced from Asia Society on Flickr

Q: How will this result affect investment in Hong Kong?
A: Investors should have been more concerned had Ms Lam not been elected. If the committee had chosen a different candidate, one that advocated Hong Kong autonomy, it would have likely angered leaders in Beijing and would have perhaps forced them to retaliate with harsh financial and legislative changes.

But Hong Kong’s economy and financial markets are closely aligned with China, and any ongoing political unrest against Beijing has the potential to impact on markets in Hong Kong. Investors should be prepared for volatility in equities markets should political tensions continue to simmer during Ms Lam’s leadership, while they should also keep an eye out for any decrease in Chinese GDP, a key indicator observed by the global investor community.

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Q: Will the election have an impact on Hong Kong’s property market?
A: As a direct result of the election, it’s unlikely. Despite the introduction of a number of cooling measures in 2016, prices in Hong Kong remain at record highs, with developers continuing to post huge profits.

But investors should be prepared for a drop off in performance as a result of rising US interest rates. Analysts at global finance firm Morgan Stanley believe that Hong Kong’s property market could see its first year of decline since 2008, with prices tipped to fall by as much as 5% in 2017. The US Federal Reserve raised its base rate of interest on March 15th, but this is expected to be the first of as many as four rises this year.

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