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Hong Kong Protests Could be Potential “Black Swan” for Markets

This article was originally published on ETFTrends.com.

While the markets are fixated on the U.S.-China trade deal, there is another potential economic risk looming that might not be getting the attention it deserves. That is the rising Hong Kong protests, which could upset any chance of a trade deal even happening.

“I think the potential black swan, if there is a black swan right now, is what’s happening in Hong Kong right now,” said famed investor Steve Eisman, who was the subject of the book and film “The Big Short.” “If things escalate even further in Hong Kong, that would have a real impact back on the global economy.”

“That’s actually what I’m worried about the most right now, because every weekend we’ve got this drama where the people of Hong Kong are having protests in the millions and its starting to get very violent,” Eisman added.

The protests, which have been festering since the start of the summer, poses a potential market risk that could translate to a black swan event. In financial sector vernacular, a black swan is a major disruption that could obliterate the markets and economy.

Per a CNBC report, “Hundreds of thousands of protesters have taken to Hong Kong’s streets since early June, due to opposition to a now-suspended extradition law that would have allowed people in the city to be extradited to Mainland China. These protests demonstrate the large discontent the people have for the city’s government. The proposal, which is suspended but not fully withdrawn, mark the people of Hong Kong’s call for full democracy.”

With the markets still reeling from the latest sell-offs due to escalated U.S.-China tensions, the Hong Kong protests could further exacerbate the situation. It will be a black swan event that could be felt all around the globe, according to Eisman.

“That is not going to be a positive in terms of negotiating a trade deal between the United States and China, its not going to be a positive at all for the global markets,” said Eisman.

For investors sensing an opportunity in Hong Kong-focused exchange-traded funds (ETFs), they can look to funds like the SPDR Solactive Hong Kong ETF (ZHOK) , Franklin FTSE Hong Kong ETF (FLHK) and iShares MSCI Hong Kong ETF (EWH) .

However, investors should proceed with caution as the violence escalates.

“The Hong Kong community has been suffering from the acts of violence perpetrated by a small group of individuals lately," the Real Estate Developers Association of Hong Kong said in a statement. "Such acts have deviated from the original intent of the peaceful demonstrations and are bringing distress to the business community and the general public as a whole.”

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