Hong Kong faces worst earnings recession since 2008


Their slowing economy is buckling under the pressure of 11 straight weeks of protests
Chief Investment Office22 Aug 2019
    Photo credit: AFP Photo


    CHINA & HONG KONG SAR

    Hong Kong stocks are poised for their worst quarter since 2015 and corporate earnings are unlikely to save them.

    After a selloff erased more than USD600b from the city’s equities, attractive valuations stood as a potential bright spot. But those multiples do not look so good when analysts keep slashing their profit forecasts for 2019. Their call for an average 19% slump in operating income would be the biggest contraction for Hang Seng Index companies since the Global Financial Crisis, data compiled by Bloomberg show.

    While a protracted US-China trade war and a weak yuan are to blame for a big chunk of the profit reductions, the latest cuts reveal a deeper issue. With Hong Kong’s slowing economy buckling under the pressure of 11 straight weeks of protests, demand for everything from bank loans to utility gas may be jeopardised.

    Shares of utilities provider Hong Kong and China Gas Company Limited fell 5.3% Wednesday (21 August) after it posted disappointing results and said the local business environment is “full of challenges”. Political unrest in Hong Kong may dampen its sales to the hospitality industry as people opt to cook at home rather than dine out, analysts at an investment company say.

    The threat from the trade war and weeks of local unrest has been apparent in the property market, as well as hotel occupancy and retail sales. CK Asset Holdings Limited, whose shares fell to lowest since January 2017 last week (ended 16 August), postponed a luxury residential project because of the protests. Various banks have lost about 9% this month as investors become increasingly concerned about capital flight. – Bloomberg News.

    The Hang Seng Index gained 0.15% to 26,270.04 on Wednesday and the Shanghai Composite Index slipped 0.01% to 2,880.33.

     

    REST OF ASIA

    Singapore has a message for Elon Musk: Taking mass transit is a better climate-change solution than tooling around in one of his Tesla Inc’s electric vehicles (EV).

    The city-state, which has said its efforts to cope with climate change are as crucial as military defence, has prioritised greater use of its trains and buses, Masagos Zulkifli, Minister for Environment and Water Resources, said in an interview Wednesday (21 August). Musk has criticised the country for being slow to adopt EVs and said in a January tweet the government “has been unwelcome”.

    The low-lying island nation faces an existential threat from the impacts of climate change and the country’s Prime Minister Lee Hsien Loong said in a national address Sunday (18 August) it could cost more than SGD100b (USD72b) over the next century to protect it from rising sea levels, hotter temperatures, and more intense rainfall.

    Singapore’s trains and buses cover much of the island’s 720 square kilometres (280 square miles) with the newest subway routes featuring driverless carriages and several of the most popular bus routes traversed by double-decker carriers. The country, with a population of about 6m, is aiming to enhance mass transit options so that by 2040, any trip within the country will take no longer than 45 minutes.

    Even though Singapore is focused on public transport, the nation is still uniquely positioned to transition to plug-ins, according to Zulkifli. That is because the state controls car ownership licenses, which it gives out on a 10-year basis and could be used as an instrument of change. – Bloomberg News.

    Australia’s S&P/ASX 200 Index gained 0.35% to 6,505.90 at the open on Thursday. It lost 0.94% to 6,483.27 on Wednesday.

    South Korea’s Kospi Index slipped 0.25% to 1,959.68 early-Thursday morning. It climbed 0.22% to 1,964.65 the previous session.

    The Taiwan Stock Exchange Weighted Index gained 0.03% to 10,525.80.

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