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Letter from... Hong Kong

07 May 2020

By Fergus Herries, Senior Consultant, Newgate Asia

The past two weeks has seen only five new cases in Hong Kong, all but one imported from abroad. As a consequence, the limiting measures which were put in place over the past few months are being gradually lifted, much to the relief of the retail and restaurant sectors. The Hong Kong approach, after a few initial weeks of confusion, was one of hard borders and soft internal controls, which seems to have worked in this initial wave.

In China, most social restrictions have been relaxed, and nearly all sectors of industry are back at work. The May Day bank holiday – known as Golden Week in China – saw more than 100 million people moving around the country, with a domestic spend of c.USD6.13 billion over the period. One headline from a mainland outlet summed up the mood nicely: “Anywhere but home”.

The next question is how badly have certain sectors suffered, and which have survived and even thrived. There has been an uptick in car ownership, as a nervous mainland populace eschew sharing public transport with other, potentially infected, passengers. Tesla is already back on track to manufacturing 4,000 cars per week for the hungry mainland market. As an aside, this is probably bad news for the electric car lobby and the environment, as shunning of public transport coalesces with historically low oil prices. 

Medical technology has of course thrived as companies race to find a vaccine and a treatment, as well as online delivery, gaming, streaming platforms and logistics. Online payments, whilst already dominant in China, has cemented its position with 765 million users of online using online payments on their phones as of March.

In terms of those sectors which have not fared so well, travel and retail have been hit hardest, with even restaurants able to shift to online delivery. It is still too early to tell about travel however – domestic tourism in China was booming and the enormous movement of people over golden week is testament to that. Optimistic forecasts of “revenge spending” – retail therapy splurging by those who had been cooped up in quarantine for the past few months – have so far failed to materialise, with luxury retail unable to report a pronounced uptick.

Banking, M&A and dealmaking is moving again. Companies are raising money, offering virtual due diligence processes, Private Equity has been raising money, with LPs and GPs taking advantage of rock bottom prices while majority owners in listed companies are swooping on the chance to take them private at depressed prices. The government in the mainland has pumped in comparable amounts to the economy as in the US and the UK and this is being put to work, in the finance world at least. 

In Hong Kong, we will have to wait and see. The most recent GDP figures have been dire. The rumblings of a resurgence in the protest movement are already detectable, and yet businesses are realising that they cannot sit on their hands forever. As the city gets back to work, there is cautious optimism in the air – the next test will be how ready we are and when we will open our borders fully.