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Protests in Hong Kong, Uncertainty in Asia’s Markets

June 12, 2019

Tens of thousands of young people – for the most part –  descended upon Hong Kong’s government headquarters on Wednesday, and police fired tear gas and rubber bullets back. The debate was over a controversial bill, allowing fugitives to be extradited to China and other jurisdictions with which Hong Kong has no rendition agreement.

“The world needs to pay attention”, according to J. Kyle Bass, the CIO of Hayman Capital Management. “I think, unfortunately, it takes a million to 1.5 million people to march in the streets of Hong Kong to get the world’s attention,” the hedge fund manager told Yahoo Finance.

Bass believes Hong Kong “sits atop one of the largest financial time bombs in history.”

He adds: “[You] have one of the most levered economies in the world encountering both financial difficulties and now political difficulties that are going to make the financial difficulties basically be put into Checkmate.”

If the extradition law were to pass with a simple majority, the repercussions would be greater than Brexit. “This is basically Hong Kong Exit,” Bass says.



To be treated as a sovereign nation, Hong Kong must maintain autonomy in its judiciary, economy, and the legislative process.

“[This] is a clear infringement of their judiciary process, i.e., making a mockery out of the Hong Kong rule of law,” Bass says. Hong Kong’s ability to govern independent of China could be doubted by the U.S.

“[That] means that the U.S. is going to treat Hong Kong as China i.e., no more most favored nation trading status,” says Bass. “We will impose tariffs, and when you look at Hong Kong’s trade as a percentage of its GDP, it’s enormous. So if all of a sudden a free trade zone becomes impeded by the U.S. treating them as China, it literally changes the calculus.”

Bass believes that “without a doubt,” Hong Kong’s status as a financial center would be in jeopardy if the bill passes. He also argues that the wealthy will leave the territory in a “mass exodus.” This could lead to an exodus to Singapore.

The U.S. has stayed neutral. “I looked today and that really is a million people,” President Donald Trump said Wednesday from the Oval Office. “A lot of times people talk about, they had 2,000 people but it was really 1,000 or it was 200. I see it all the time … but when you look at this demonstration, they said it was a million people. That was a million people. That was as big a demonstration as I’ve ever seen, so I hope it all works out for China and for Hong Kong.”

Trump added: “I understand the reason for the demonstration, but I’m sure they’ll be able to work it out. I hope they’ll be able to work it out with China.”

Opponents contend that the bill could mean democracy activists, journalists and foreign businesses could be surrendered to mainland China.

Hong Kong’s stock market was down on Wednesday. The Hang Seng, which ended the day at 1.7% lower, suffered from a selloff thanks to Wharf Real Estate Investment, down 5.4% and New World Development, which fell 4.2%.

“We’re going to see a hit on the markets because the ramifications of the bill are so significant,” Richard Harris, chief executive officer of Port Shelter Investment Management, told CNN.
Francis Lun, chief economist of GE Oriental Financial Group, doesn’t think markets will crash.
“The economy will keep on humming along, and as far as the political scene is concerned, China has control of everything. What can you do? Everyone will protest, but it will remain the same,” he said.
The protests could drive more investors in both mainland China and Hong Kong into Bitcoin, continuing a trend Forbes contributor Jeff Kauflin reported on in May.

Leading up to the protests, Trump had increased tariffs recently on China. The yuan fell 2% versus the dollar. President Xi Jinping devalued the currency to keep Chinese goods price-competitive for U.S. buyers despite tariffs.

“I’ve talked to a bunch of traders on the ground in Hong Kong,” Philippe Bekhazi, CEO of XBTO, a New York crypto trading firm that trades more than $1 billion a month, told Forbes. “There’s a booming business in stable coins because people are getting money out of China and Hong Kong.”

Chinese customers have trouble trading institutionally due to regulatory uncertainty so its tough to gauge the size of that market. “Most of OTC trading in China happens on WeChat groups,” Dave Chapman, chairman of OSL, a Hong Kong OTC brokerage that reportedly trades more than $1 billion a month told Forbes. “You don’t have a reputable, 24-hours, 7-day-a-week operation in China.” Chapman estimates that up to 20% of global crypto trading volume originates in China.

Meanwhile, Hong Kong Police Commissioner Lo Wai-chung confirmed the use rubber bullets and pepper spray against advancing protestors, which had been deemed “a riot” by authorities. Upwards of 5,000 police in riot gear deployed to guard the government headquarters.

Debate over the extradition bill was postponed.Hong Kong’s leader Carrie Lam has refused to withdraw the extradition bill. She says the bill plugs loopholes to prevent the city from becoming a haven for mainland fugitives.

Image: Andrew Haimerl, Pexels