The unexpected pro-democracy protests in Hong Kong over the weekend have impacted the financial markets, with the Hang Seng stock index declining by around 2.5% and the Hong Kong Dollar (HKD) falling to a six-month low against the Greenback.
This emergence of unrest will remain in the headlines for some time, and we should expect more losses in Hong Kong to be reported. There has always been anxiety that the US Federal Reserve concluding Quantitative Easing and moving towards normalizing monetary policy would have an adverse impact on emerging market currencies and a period of unrest occurring in Hong Kong will only accelerate a decline in the HKD.
The CNY has also dropped against the USD following the events in Hong Kong and investors should pay careful attention towards the CNY in the coming days. While a weaker CNY may help rebalance China’s economic growth, there will be fears that the demonstrations in Hong Kong might make their way into China.
Investors are clearly seeing the situation in Hong Kong as a risk right now, and this is leading to a decline in the HKD. The current USD/HKD yearly high is recorded at 7.7674 and a combination of corporations suspending operations in Hong Kong alongside the protests not appearing to be concluding anytime soon, should lead to a re-test of this level.
China’s national holiday begins this week (1-7 October), and transport officials anticipate over 600 million passengers will be on the road this year. However, the protests in Hong Kong are likely to deter potential tourists from visiting, which may lead to further losses for the Hong Kong economy.
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