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Investors Are Worrying About Hong Kong Banks as Protests Roll On

Alfred Liu

(Bloomberg) -- Investors are getting anxious about the impact anti-government demonstrations are having on Hong Kong’s banks.

“Things will be going down if people start seeing Hong Kong, which is an international financial center, differently,” said Ronald Wan, CEO of Partners Capital International Ltd. “There will be concern over banks if we see significant capital outflows as they will lose support for business.”

It’s not just anti-government demonstrations, now in their 11th week, that are hurting banks in the city: a slowing economy, weaker Chinese currency -- down 2.5% since the end of June -- and the trade dispute with the U.S. create a troublesome mix. And it’s showing in the stock market.

HSBC Holdings Plc’s shares have plunged 13% in just three weeks and are near the most oversold since at least 1989, while BOC Hong Kong Holdings Ltd. has dropped 12% this month. Lenders’ losses have weighed on the benchmark Hang Seng Index, which is among the worst-performing major equity gauges in the world this August, though it rose 0.9% Friday.

Citigroup Inc. has turned more cautious on Hong Kong banks, saying in a research note last week that the weakening yuan would cause a “drastic” decline in loans to mainland China clients and hurt asset quality. “We see bigger earnings risk to Hong Kong banks,” analysts including Yafei Tian wrote, downgrading the rating on BOC Hong Kong to neutral. They also said there’s 20% to 60% downside in the sector’s earnings per share.

Demonstrations in Hong Kong, sparked by opposition to an amendment to the extradition law, show no sign of letting up and have become increasingly disruptive. The city’s airport, one of the busiest in Asia, was brought to a standstill earlier this week as protesters swarmed the terminal, resulting in the cancellation of flights.

“Investors don’t want to delve deeply into politics but this is something they don’t want to see,” Wan said.

Hong Kong’s Financial Secretary Paul Chan said Thursday that the city’s economy will struggle to expand at all this year, slashing the gross domestic product growth forecast to just 0%-1% from 2%-3% previously. Chan also announced fiscal support measures, with a stimulus package worth more than $2 billion.

(Updates prices.)

--With assistance from Jeanny Yu.

To contact the reporter on this story: Alfred Liu in Hong Kong at aliu226@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Will Davies, Jun Luo

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