HONG KONG (Reuters Breakingviews) - Congratulations on a great quarter, Hong Kong. The city so far has staved off a health crisis, with just over 1,000 Covid-19 patients and four fatalities, a fraction of the figures recorded in other finance hubs. The return of protests signals a return to an unhappy normal but political turmoil may be less of a reason than before to downgrade the territory’s international rating.
Hong Kong has been free of local transmissions for three weeks, and as of last week, began easing curbs on public gatherings. Restaurants and bars in the busy Central district were overflowing at the weekend, while schools, gyms and other establishments are gradually re-opening. Compared with draconian lockdowns across the border in mainland China or overwhelmed hospitals in European and American metropolises, Hong Kong’s 7.5 million inhabitants could do a lot worse.
Another clear sign of a return to normal are anti-government protests, which flared up on Sunday on the back of recent mass arrests of pro-democracy activists, and Beijing’s noticeably more intolerant and hard-line stance on Hong Kong. It brings with it risks of political instability that had earlier led to downgrades from sovereign rating agencies Moody’s and Fitch, broadly citing weaker institutions and governance as well as deep-rooted socio-political divisions.
But polarisation, a record-low public opinion of leader Carrie Lam, and even the economy’s steepest annual contraction, at 8.9%, in the first quarter suddenly seem less bad on a relative basis than the problems shaking other cities. If anything, Hong Kong’s stellar healthcare and other infrastructure look underpriced in the sum of its parts, while voluntary social distancing measures and widespread wearing of masks is a poignant reminder that social cohesion has been too heavily discounted.
And there are catalysts to come for Hong Kong’s battered capital markets. The local benchmark index is down over 10% since the start of the year, slightly worse than the S&P 500. Likely deals in the second half of the year, however, including a secondary listing from $70 billion JD.com and the public debut of Tencent-backed WeDoctor, will underscore the city’s financial strength. Hong Kong’s valuation is getting messier but outperforming peers is sometimes enough.
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