Hong Kong Protest 1 : Discretionary Retailers 0

hong kong protest

 

To set our pace from the onset – our article today isn’t to take any side in the 2014 Hong Kong protests or also known as the “umbrella revolution” that started in 2014. But rather we will focus on how this has impacted retailers in Hong Kong, especially those in the affected areas like Admiralty, Central, Mong Kok and Tsim Sha Tsui. However it helps to understand a brief history of how this came about…

 

How Did This All Start?

There may have been many events like the national security law in 2003 and “patriotic education” leading up to 2014, but the last straw that broke the camel’s back was triggered by the Chinese government’s ruling limiting who could stand as a candidate during Hong Kong’s 2017 elections. The protests were led by democracy activists – Occupy Central and subsequently garnered the support of thousands of people.

An interesting fact was that prior to the handover in 1997, Hong Kong was a British colony ruled by 28 governors for 155 years – All of them directly appointed by London! Only after the return to China did Hong Kong gain a degree of public participation in the government. However, what many may not know is that China allowed Hong Kong its autonomy for only 50 years, post 2047, Hong Kong may not have that much autonomy.

The socialist system and policies shall not be practiced in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years”.

 

But Coming Back, How Were Retailers Affected?

According to a report by Channel News Asia, a survey by the Hong Kong Retail Management Association indicated that average sales have dropped between 30-40% since Oct 1, 2014 (The article was dated Oct 8, 2014). Smaller businesses near the affected areas were hit the hardest with sales reportedly plunging up to 90%!

Such a disruption would undoubtedly affect retailers in the discretionary sectors more than the staple retailers. To put it simply:

  • Discretionary: Want
  • Staple: Need

In times of unrest, you can survive without your “wants” but you would still have to buy your “needs”. According to an article by TODAY on Oct 8, 2014, discretionary products like watches and jewellery like Hengdeli Holdings Ltd (HKG:3389), Chow Sang Sang Holdings Intrnl Ltd (HKG:0116), Chow Tai Fook Jewellery Group Ltd (HKG:1929) and Luk Fook Holdings (International) Ltd (HKG:0590) were hit the most.

On a side note, the protests also “helped” to wipe close to S$63.8 billion of market capitalization off the Hong Kong Stock Exchange!

 

What Is Golden Week?

Golden Week is a week-long National China holiday that begins in Oct. Why this was crucial for Hong Kong retailers was due to the fact that more than a third of the sales in Hong Kong were from China visitors! With the corruption crackdown in China coupled with this protest right smack at the start of the protests created a perfect storm for these discretionary retailers.

 

Value In Action

In times of trouble, that’s where opportunity exists. Have Hong Kong listed shares fell low enough to warrant our attention?

The Hong Kong stock market has definitely been hit over the past year and in our opinion, some consumer staples have wandered into our line of sight and may be approaching a rather interesting range. Maybe you can start by looking into businesses listed in Hong Kong that have been affected but have the main bulk of their operations in China!

 

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All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong is a shareholder of Hengdeli Holdings Ltd.

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