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Investors worrying about Hong Kong banks as protests roll on

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HSBC Holdings' shares have plunged 13 per cent in just three weeks and are the most oversold since at least 1989.

[HONG KONG] Investors are getting anxious about the impact anti-government demonstrations are having on Hong Kong's banks.

"Things will be going down if people start seeing Hong Kong, which is an international financial centre, differently," said Ronald Wan, CEO of Partners Capital International Ltd. "There will be concern over banks if we see significant capital outflows as they will lose support for business."

It's not just anti-government demonstrations, now in their 11th week, that are hurting banks in the city: a slowing economy, weaker Chinese currency - down 2.5 per cent since the end of June - and the trade dispute with the US create a troublesome mix. And it's showing in the stock market.

HSBC Holdings' shares have plunged 13 per cent in just three weeks and are the most oversold since at least 1989, while BOC Hong Kong Holdings Ltd has dropped 12 per cent this month. Lenders' losses have weighed on the benchmark Hang Seng Index, which is among the worst-performing major equity gauges in the world this August.

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Citigroup has turned more cautious on Hong Kong banks, saying in a research note last week that the weakening yuan would cause a "drastic" decline in loans to mainland China clients and hurt asset quality. "We see bigger earnings risk to Hong Kong banks," analysts including Yafei Tian wrote, downgrading the rating on BOC Hong Kong to neutral. They also said there's 20 per cent to 60 per cent downside in the sector's earnings per share.

Demonstrations in Hong Kong, sparked by opposition to an amendment to the extradition law, show no sign of letting up and have become increasingly disruptive. The city's airport, one of the busiest in Asia, was brought to a standstill earlier this week as protesters swarmed the terminal, resulting in the cancellation of flights.

"Investors don't want to delve deeply into politics but this is something they don't want to see," Mr Wan said.

Hong Kong's Financial Secretary Paul Chan said on Thursday that the city's economy will struggle to expand at all this year, slashing the gross domestic product growth forecast to just 0 per cent-1 per cent from 2 per cent-3 per cent previously. Mr Chan also announced fiscal support measures, with a stimulus package worth more than US$2 billion.

BLOOMBERG