PBS Nightly Business Report interview – Why Hong Kong unrest scares markets

PBS Nightly Business Report interview – Why Hong Kong unrest scares markets

September 29, 2014 0 Comments

You can see a video clip of the interview by clicking here. The focus here is on the market impact, not the political issues. Here are the briefing notes I used to brief the anchors before the show.

JR

Briefing Notes

-The photos from Hong Kong are chilling. This story has just begun. The HK elections they are disputing are still 3 years away in 2017.
-The big issue is whether HK voters will choose from a menu of candidates pre-approved by Beijing govt (the current rule) or from an uncontrolled list (what the democracy protestors want.)
-China’s leaders are influenced by 2 forces today. Both encourage them to be tough.
-They have internal pressure to be firm and not look like they can be pushed around, especially by the US. Political stability is the only thing that matters to a Chinese leader.
-They believe the Obama administration has a weak foreign policy and the US is tired and drained after 13 years of Gulf war.
-Conclusion: China leaders cannot back down to the demonstrators.
-US (Obama team) feels like they have to look strong so are getting more aggressive.
-Example: US/Philippines are holding joint exercises this week in the South China Sea very near the contested Spratly Islands claimed by China.
-This sort of behavior fom US will harden China stance in HK.
-So there is an element of China/US confrontation in the HK unrest.
-Testosterone wars like this often end badly.
-At risk:
-China week-long National Day holiday starts Wed. Would normally be a big travel and shopping week in HK. Never mind this year.
-China has had 1 negative GDP quarter already. This could mean another, i.e., recession.
-Bigger risk: HK property prices are already over-valued. Huge $ there at stake.
-Biggest risk is China’s reputation as a rule of law financial center. That reputation is everything.
-What to do as an investor?
-Raise cash. Too many hot spots around the world for my taste and IPOs show market is “toppy”
-Buy Singapore (EWS). That’s where financial institutions will go if they leave HK.
-Buy defense stocks. (ITA, GD).
-What to do as a human?
-hope/pray that the morons in Washington and Beijing can learn to control their testosterone before they blow up something big.

John Rutledge

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