Preamble
The title of this blog is inspired by a headline that appeared in The London Times on October 27th 1957 and has become an iconic quotation ever since (originally Heavy Fog in Channel. Continent Cut Off). It’s famous for highlighting the small minded yet still imperious nature of the British. Then, as now, a tiny part of Europe they believed Europe would be more vexed at not being able to get to Britain than Brits would be about not being able to get to Europe. Why would one need to go there anyway? Especially in October; too warm for skiing and too cold for the Cote D’Azur!
That HSBC report
I haven’t seen the HSBC report that went out yesterday morning nor have I seen the subsequent clarification but its contents have been so widely reported I’m prepared, on this occasion, to take the journalists’ reports as fact and just in case you’ve been on Mars for the last 24-hours here’s a quick re-cap of events.
The Report and immediate reaction
According to the FT HSBC issued a report yesterday morning downgrading Hong Kong directly citing the ‘Occupy Central [They forgot the now With Love and Peace bit]’ movement as being the prime reason. Following a storm of social media comment (none of it favorable I presume?) plus what I would imagine would have been apoplexy among HSBC Grandees a clarification appeared sometime after 17:00.
The clarification
Citing a plan to publish a more full account on Tuesday anyhow they decided to advance details and clarified that the downgrade was in fact in response to weaker local property markets, a slowdown in mainland tourist arrivals, the PEG’s effect on local interest rates if rates in the US were to rise, weaker earnings momentum and the Occupy threat.
[http://www.ft.com/intl/cms/s/0/52496d3c-05de-11e4-9baa-00144feab7de.html#axzz36pfmoyYv]
So far – So parochial
The point lost in all this noise, and the point the Occupy folk seem to be missing, is Hong Kong the place is now largely irrelevant in terms of how its provincial future may affect the value of companies listed on its exchange. Nearly 25% of the Hang Seng index constituents have the word China as their first name and I don’t know the number exactly but I’d bet that over 75% of the earnings of index components are now coming directly from China with most of the rest being a direct derivative.
Confusing stock prices and company values
HSBC can be forgiven an error of judgment but commentators, including the HSBC team, were collectively guilty of the fundamental mistake of confusing stock prices with company values. Civil unrest, were it to occur, in Beijing may surely have an impact on the earnings power of companies deriving their earnings from China; but civil unrest in what is increasingly a smaller part of China’s bigger economic landscape can’t be material.
In conclusion
There’s a small army of analysts still employed to say it isn’t so but from an understanding-markets-perspective Hong Kong doesn’t exist anymore. When did you last hear of the New York and US or London and UK or Tokyo and Japan markets being referred to separately?