Is Hong Kong Ready for the Pokemon Go Invasion?

Editors' pick: Originally published July 14.

We here in Hong Kong can't yet experience the joys of Pokemon Go, which seems to have caught on even quicker than heroin in the United States. I hear it's equally addictive.

The game, for now, is only available in the United States, Australia and New Zealand. But Hong Kongers are adept at cracking locked devices and have made an art form of "parallel imports" -- our term for goods that are brought in from other markets such as the United States ahead of the official domestic release. If a new iPhone is available anywhere, you can get it here at a steep markup, until the company rolls it out for real.

Hong Kong gamers had been getting around the lack of an official release by linking to third-party websites to download the app. Nintendo's (NTDOY) partner, Niantic, soon worked this out (traffic crashed its site!) and shut down server access from Hong Kong. Other Hong Kongers, in this most global of cities, had opened iTunes accounts in Australia and New Zealand to get their Pokemon fix.

There's one Hong Konger who is already making the most of the game, however. Seth Fischer, who runs the hedge fund Oasis Management, had about 4% of his $1 billion fund in Nintendo shares as of June, according to The Wall Street Journal.

Ever since June 2013, Fischer has been pushing Nintendo to move from its console business into mobile gaming, something my Real Money colleague Eric Jackson outlined yesterday may be an issue for upper management, much to its cost.

Japanese companies are incredibly recalcitrant. My wife worked in the marketing department of Japan Airlines (JAPSY)  for several years, in the Hong Kong office. Even as competitors such as domestic "upstart" ANA (ALNPY)  as well as Hong Kong carriers Cathay Pacific  (CPCAY) , its subsidiary Dragonair (now Cathay Dragon), and the budget airline Hong Kong Airlines were biting into its business, it continued to insist on maintaining high fares. It was confident the executives of Japan Inc. would maintain their loyalty to the national carrier.

They did not. When my wife joined, JAL had six flights per day from Hong Kong to Tokyo. They now have one. ANA has become Japan's largest carrier.

Fischer insists that a strong move into mobile gaming could boost its share price by between 97% and 240%. Of course, he was speaking before Nintendo's 50.5% run up in the last week, which has added a nice little $20.2 million to the Oasis portfolio.

We'll eventually get Pokemon Go, and I shudder to think what this will mean for one of the most densely populated cities on the planet.

By some counts, the Mong Kok neighborhood in Kowloon has more people per square foot than anywhere else on earth. Quite what happens when they're all scurrying around with their iPhone stuck to their face, jumping over and around physical objects to capture imaginary ones, I don't know.

Whether Nintendo management will get it is another matter. It remains clasped to its locked systems in much the same way Sony tries to get consumers to use only its own memory cards in cameras.

In 2014, Fischer wrote a letter to the then-CEO of Nintendo, Satoru Iwata, arguing that the former boys and girls who played Super Mario, Donkey Kong and Legend of Zelda as kids are "a demographic whose engagement on the smartphone is now valued by the market at well over $100 billion."

I'm not sure it has listened properly to that message even now, with a huge hit on its hands. Their next steps will be very telling. But they're not above cutting their nose off to spite their face.

Nintendo is already passing up the chance to make any money out of China with Pokemon Go. It has opted to add the Middle Kingdom to the shortlist of countries barred from getting the app: China joins Taiwan, Cuba, Iran, Myanmar and Sudan in being shut out.

Nintendo has not said why. While the other countries appear to have made the list for political reasons, piracy would likely be the No. 1 concern in China.

However, the company might have been smarter to play along, and make whatever it can out of China. A knock-off version of Pokemon Go, City Spirit Go, has become the most-downloaded app in China in a matter of days, anyway.

Editor's Note: This article was originally published at 8 a.m. EDT on Real Money on July 14.

At the time of publication, McMillan had no positions in the stocks mentioned.

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