HONG KONG (Reuters) - China’s new security laws for Hong Kong will punish crimes of secession, subversion, terrorism and collusion with foreign forces with up to life in prison, heralding a more authoritarian era for the Asian financial hub.
The laws came into effect on Wednesday, 23 years after Hong Kong returned to Chinese rule, with many in the city fearing the legislation will crush wide-ranging freedoms promised to Hong Kong under a “one country, two systems” formula for governance.
Here’s what financial analysts are saying about the legislation:
LINUS YIP, CHIEF STRATEGIST AT FIRST SHANGHAI SECURITIES LTD, HONG KONG
“Expectations of the law had been building over the past month, and we’ve also seen debates within Hong Kong, and response from the U.S. But it doesn’t mean Hong Kong stocks won’t fall.
The market still faces pressure from a fragile economy and weak corporate earnings. The market has rebounded from 21,000 points to about 25,000 points, so there’s correction pressure. Impact from U.S. sanctions is limited. Profit-seeking global companies will still stay in Hong Kong.”
“The fall of the curtain of one country two systems was greeted with an uneasy calm. It may be the calm before the violent storm, as many democracy fighters go underground or overseas.
The finance industry, living in a parallel universe seemed totally unperturbed by the strong undercurrent. Finance people are just obsessed with making money. Nothing can deter them from their only goal in life. As long as Chinese companies come and list in Hong Kong, the party will go on.”
BRUCE YAM, FOREX STRATEGIST AT EVERBRIGHT SUNG HUN KAI, HONG KONG
“There is no basis for large Hong Kong dollar (HKD) depreciation. Many Chinese companies have been coming here to list, there are still many IPOs in the pipeline. Demand for HKD is still there.
“I don’t think we will see much market impact (when stocks reopen) on Thursday. The passing of the law was within people’s expectations. HKD has been trading at the strong side of the band.
“We will need to watch whether the U.S. will take further action. U.S. Treasury Secretary Steven Mnuchin has mentioned potential restrictions of capital flows in Hong Kong before... but so far they haven’t taken real action.”
“Despite the narrowing spread of Hong Kong interbank rates over U.S. ones, the Hong Kong dollar may remain resilient given dividend payouts and a busy IPO pipeline.
“Meanwhile, the market may remain cautious about any further actions to be taken by the U.S. on Hong Kong issues. Markets will now focus on the response from the U.S. and other countries, and how the Hong Kong issue would affect the Phase 1 Sino-U.S. trade deal.”
MARK DONG, CO-FOUNDER OF MINORITY ASSET MANAGEMENT, HONG KONG
“There’s little in the published National Security Law that’s beyond market expectations. We don’t foresee a big response at the market open tomorrow. From a long-term perspective, the release of the National Security Law increases the predictability of Hong Kong’s stability.
“Valuation of the Hong Kong market is relatively low among global markets over the past few years, and its performance is weaker in the first half, compared with A-shares and U.S. stocks. Therefore, Hong Kong stocks have fully priced in investors’ pessimistic views.”
CHRISTY TAN, HEAD OF ASIA MARKETS STRATEGY AND RESEARCH AT NATIONAL AUSTRALIA BANK, SINGAPORE
“It’s more of a political than a market moving event. The overall fabric of the Hong Kong economic and political environment is radically changed, but not to the extent that a lot of HongKongers have been worried about, where it would mean a loss of freedoms, or the loss of one country two systems. I think by and large it is confined to being a political event.”
“We have also seen plenty of money being poured into Hong Kong, especially in the secondary listings of big Chinese companies - especially over the last year though the law-and-order situation remains an issue.
“As long as money can be made, opportunities for wealth creation remain strong. Nothing pulls people more than if they can make money. So while there’s plenty of uncertainty in terms of what this new security law entails, the money appeal remains a key magnet and Hong Kong will continue to see those flows of IPOs.”
“For a few years, geopolitical factors have created market volatility and have generally been negative for sentiment. This latest development is another move in a long game for China. It brings higher risks for companies operating in the region, however, it has been well-flagged and is arguably already priced in.”
“Markets may be looking at it more from a humanitarian perspective, but not really from a financial one. At the end of the day, the Chinese also want the Hong Kong capital market to flourish. It is not something I am going to trade on so much.”
“The laws, combined with the change in Hong Kong’s status from the U.S., is another development in the U.S. and China cold war that has been going on for a long time. It has not taken people by surprise but it’s an unwelcome development. It’s one of a number of geopolitical factors which is a negative for some asset classes now.”
“Markets have been well prepared for these laws, it’s not unexpected because it has been well flagged by Beijing. Hong Kong stocks have been trading at a significant valuation discount for some time. The price to earnings ratio of the Hang Seng Index is 11 times, that is very low compared to markets around the region so stocks in Hong Kong have been at a discount. The laws are not a positive for the outlook of Hong Kong stocks, there’s been a sense of inevitability about this.”
Reporting by Scott Murdoch, Noah Sin and Alun John in Hong Kong, Samuel Shen in Shanghai, Shriya Ramakrishnan in Bengaluru and Anshuman Daga in Singapore; Editing by Jennifer Hughes and Jacqueline Wong