US secretary of state Mike Pompeo has announced that Washington no longer considers Hong Kong to be autonomous from mainland China following the imposition of a new security law, jeopardising the city’s privileged economic and legal relationship with the US.
The “combative rhetoric” is hardly creating the stable backdrop the global economy needs if it is to bounce back from Covid-19, say Michael Farr and Dan Mahaffee for CNBC. Markets have yet to succumb to the grim economic news worldwide, but we could be approaching the “last straw” – the moment when just one more negative development finally pushes markets over the edge.
The political crisis has taken a heavy toll on Hong Kong’s Hang Seng index, which has tumbled by 15% since the start of the year. The index has significantly underperformed other Asian markets, with mainland China’s SSE and Japan’s Topix down just 5% and 6% respectively this year.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The city’s stocks enjoyed a good start to the week, advancing 4.4% over Monday and Tuesday, but concern is growing that the “Phase One” US-China trade deal could be under threat. China has promised to buy $36bn in US agricultural products this year as part of the truce. There was confusion this week as reports that Beijing had halted the purchases conflicted with news that state-owned firms had placed new orders for 180,000 tonnes of American soybeans.
Decoupling gathers pace
On other fronts the American and Chinese economies are drawing further apart. The Luckin Coffee accounting scandal has prompted greater scrutiny of the 150 or so Chinese companies listed stateside, says Craig Mellow in Barron’s. Political and regulatory pressure to evict the likes of Alibaba and Pinduoduo from New York exchanges is “real and mounting”. Yet denying Chinese businesses easy access to American capital may not carry the sting it once did. Social media giant Tencent Holdings has not suffered from its Hong Kong listing, returning more than 150% over the past five years.
The US has other ways to tighten the financial screws on Beijing, says Mike Bird for The Wall Street Journal. The announcement that Hong Kong is no longer to be considered autonomous could mark the first step towards a policy of restricting the ability of Chinese banks to conduct international trade in dollars, a favoured US tactic against adversaries. US moves to isolate Hong Kong strike at China’s most important “point of access to global finance”. That could ultimately undercut the Chinese leadership’s overseas ambitions and place new strains on the country’s “debt-laden property developers”.
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Scottish Mortgage: why we’re turning to private companies and China for exceptional returnsWhen it comes to delivering growth, Scottish Mortgage will stop at no end in its hunt for exceptional long-term returns - this includes China, unicorn companies and sectors such as space exploration
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
-
Buy-to-let returns fall 59% amid higher mortgage ratesBuy-to-let returns are slumping as the cost of borrowing spirals.
