Hong Kong Protests Mean Instability for Investment, Tourists, Retailers

TAIPEI (TheStreet) -- Weekend clashes between thousands of pro-democracy protesters and tear gas-spraying police in Hong Kong threaten high-end retailers, the stock market and subsidiaries of a number of American companies on Monday.

A disruptive long-term occupation of the Asian financial hub's Central district or a series of violent incidents could cut deeper into the Hong Kong economy as tourists stay away and investors shift their holdings elsewhere. Hong Kong's Hang Seng stock exchange sagged about 2% by late Monday, what one economist called a "chunky" drop that was out of line with other Asian markets. 

U.S. stock markets also fell, reacting to the instability in the region.

"If it gets bad, like Thai-style turmoil, that would spread more broadly," says Tim Condon, a research head with ING Financial Markets in Singapore, referring to last May's mass unrest in Thailand. "People don't want to be exposed to a place where there's blood in the streets. Markets can handle risk, but not uncertainty."

Protesters plan to strengthen their hold in the days ahead. "Hong Kong's stability is very important for Asia," says Raymond Wu, managing director with Taipei-based risk consultancy e-telligence. "It's a regional financial hub, if not more. It will, of course, have an impact if the confrontation persists."

One of the U.S. companies hit by the protests is Facebook (FB)  after Beijing blocked Instagram, sources in the country said Monday -- China it did not want images of the clashes that injured at least 26 people to reach viewers in mainland China. 

Facebook spokeswoman Charlene Chian said the Nasdaq-listed social media giant was looking into the reports about Instagram. Facebook has been off-limits in mainland China before but the authorities had allowed Instagram to gain a following.

Also hit by the protests against China's authoritarian rule in the world financial hub -- high-end retail.

Sales at Hong Kong's luxury brand outlets have sagged over the past six months after China started cracking down on the freewheeling purchases of corrupt mainland officials. The current demonstrations could deter ordinary mainland Chinese shoppers at a time when Beijing is likely to also tell travel agents to steer mainland tourists away from Hong Kong so they don't see anti-Communist Party activity.

There were 40.7 million tourists from the mainland last year, and keeping them from Hong Kong would hit not only the world's top fashion brands but thin crowds at Hong Kong Disneyland, which called mainland China a top source of visitors in 2012. Disney (DIS) spokespeople in Hong Kong were not available for comment.

Thousands of demonstrators turned out over the weekend because they want to choose the seven million-population territory's chief executive in 2017 and legislators in 2020. China wants a 1,200-person committee including many Beijing loyalists to vet candidates.

China took back the former British colony in 1997, pledging to rule it with a "one country, two systems" model that would give Hong Kong economic and political autonomy for 50 years.

Traffic in the territory's Central district was light for a Monday. Some public transportation had stopped as protesters stuck peacefully to their posts after facing tear gas the night before. But Wednesday and Thursday are public holidays, one investment bank spokesman noted, so the finance sector was prepared for a light week anyway.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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