Profiting from Crisis

What is the cost of revolution and who profits from it?

Whatever your view is on the absolute chaos in Hong Kong, be it the beginning of a just revolution or an unnecessary and damaging rebellion, it is and will continue to be a colossal disaster for the territory’s economy. Economists at ING Think, an economic think tank, said Hong Kong is sliding into a brutal recession in a white paper. “No one is expecting a sudden end to the violent situation. We’re forecasting GDP growth at -7 per cent for the fourth quarter, and full-year growth will be -2.25 per cent in 2019, which is close in scale to 2009’s recession of -2.5 per cent…” Specifically, the economy could shrink 5.8% in 2020, given the expected trade war uncertainty and backlash of violent protests continued throughout the year.

Nevertheless, Hong Kong’s turmoil don’t spread to other nations. If one place stands to benefit from Hong Kong’s troubles, it is the other self-governing, Chinese-majority, financial, commercial and shipping hub in East Asia: Singapore.

“Recent events in Hong Kong have also induced demand into other gateway markets, with Singapore being seen as one of the key beneficiaries,” a Jones Lang LaSalle report states.

The two places have much in common: both are centers of free trade. Thanks to minimal regulation and efficient bureaucracies, Singapore comes second and Hong Kong fourth in the World Bank’s ranking of 190 countries for the ease of conducting businesses. Both cities once prided themselves on their adherence to the rule of law and the low crime rates on the streets.

But the real question is: how specifically has Singapore begun to substantially benefit from the Hong Kong protests? According to the available data, the flow of cross-border capital, arbitration cases, and real estate capital from Hong Kong to Singapore are the biggest factors in making substantial impacts in both Singapore and Hong Kong.

Cross-Border Capital

Goldman Sachs has estimated that US$4 billion in deposits has left Hong Kong for Singapore between the months of June and August, 2019. Goldman Sachs analysts Gurpreet Singh Sahi and Yingqiang Guo reported through an ‘Investment Note’ in November 2019 that “Modest net outflows from local currency deposits in Hong Kong and the net inflows of foreign currency deposits in Singapore.” This “trend will likely continue as the situation worsens in Hong Kong,” said Ju Ye Lee, a Singapore-based economist with Maybank Kim Eng Securities. “If $4 billion is what flows out in 2 months, imagine what the situation will look like in 2020, especially with expected continuation of the protests.”

A large part of the outward flow of the deposits is the reallocation of firms, especially financial firms, and thus the assets they possess or represent. In a survey conducted by the American Chamber of Commerce in August 2019, 80% of the 100+ firms interviewed stated that the protests have seriously impacted their future investment concerning Hong Kong. This investment was defined as both financial investment and expanding branches of the firms in Hong Kong. Of the surveyed companies with an office in Hong Kong, over a quarter stated that they are seriously considering moving their business functions out of Hong Kong and 10% have already created plans to relocate. Of the firms interviewed, 90% have stated that Singapore would be the best among the global options for relocation.


Another significant portion of the deposits leaving Hong Kong is personal assets. Individuals and families have moved liquid assets over to Singapore and assets such as land have been gradually sold off in anticipation of the sliding real estate prices in Hong Kong.

Hong Kong’s plunge to the least-favored real estate investment destination next year comes as the city’s tourism and retail sectors take a battering, and impacting economic growth.

According to an Urban Land Institute and PricewaterhouseCoopers LLP report regarding property trends in Asia, Singapore is now ranked as the best location for real estate investment prospects in terms of price increases in 2020. Hong Kong has plunged from 14th place to the bottom of the list of total 22 cities in 2019 and is the only city on the list with the with its investment and development prospects rated as “Generally Poor”, the lowest rating given.

Hong Kong’s struggles bode well for Singapore, indeed, Urban Land Institute CEO Ed Walter states, “A lot of theory in investing is less about what was, versus what is or what is going to be,” he said.

Singapore was also one of the few markets regionally to see a jump in property transactions in the first half, with most activity driven by the cross-border capital stated above. Deals totaled $4.9 billion in the period, up 73% year-on-year, the report found. More broadly, capital inflows from the U.S. and Europe to Asia Pacific dropped amid trade war concerns, touching the lowest since 2012 in the second quarter of 2019.

Over the past few quarters, apartment prices have rebounded in Singapore, signaling resilience in the residential market, while the office sector has largely absorbed the oversupply.


Another important yet often ignored aspect of a city being an international business hub is the presence of arbitration hearings. Safety fears in Hong Kong due to the increasingly violent protests have prompted firms to shift arbitration hearings to Singapore, another sign that pro-democracy protests are denting its appeal as an international business hub.

Reuters has reported that the unrest also undermines the city’s position as one of the world’s top centers for arbitration, a process of settling disputes outside the public court system, with cases moving to its rival Singapore.

International firms in dispute look for neutral sites with trusted legal systems for arbitration, and the parties involved decide where to hold hearings and which jurisdiction’s rules should be used.

Why is it so important for Hong Kong to retain its current and future arbitration hearings? If Hong Kong laws are chosen as the framework for arbitration, making it the “seat” for the case, its courts will have supervisory powers over the arbitration even if the proceedings are held elsewhere. That allows for it to have a greater role and influence in international business and bolsters their reputation of being a good place to conduct business.  This will increase not only individual investments by financial firms but general investment in infrastructure, real estate, and other sectors which help promote the city’s economy.

In only one of the many cases of the migration of arbitration hearings, Australian mining firm Kingsgate said last month it had moved hearings related to a dispute with the Thai government from Hong Kong to Singapore early 2020 over safety concerns.

Maxwell Chambers, the main venue for arbitration meetings in Singapore, said “quite few hearings” had moved there from Hong Kong in recent months because of the protests.


Firms and wealthy individuals understand that once the protests in Hong Kong end, sectors such as real estate can rebound quickly and the rule of law can most likely be restored. However, the overlying issue according to Urban Land Institute CEO Ed Walter is the political aftermath of the protests. “The bigger issue is what happens from a political perspective and what does that signal about Hong Kong’s leadership as a financial center.” Even if the government prevails and the order is restored in Hong Kong, the harsh actions and disorganized political decisions by the government during the chaotic conflicts will forever change the international communities’ view of Hong Kong as a financial center to a second tier city, one lower than its neighbor Shenzhen. If the protestors win, more unprecedented chaos is sure to affect Hong Kong and if there is one thing that markets hate, it is uncertainty and unpredictability. Regardless of what the future lies, the protestors’ violent actions have caused incomparable and irreparable damages to not only Hong Kong’s economy but also its image as an influential city. The protestors will soon have to choose between a stable political and economic state where Hong Kong retains its influential status or a chaotic environment with democracy being a faint possibility.

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