Bets against Hong Kong reach new extremes in financial markets

HONG KONG (BLOOMBERG) – Investor confidence in Hong Kong is dwindling as the government loses its grip on an escalating Omicron outbreak.

Bearish bets against the city's shares have climbed to records and the benchmark Hang Seng Index is near a two-year low.

Residents are converting the local currency into China's renminbi at the fastest pace in more than a decade, while the Hong Kong dollar is moving towards the weak end of its trading band against the greenback.

Even the city's typically resilient property market is showing cracks, with a gauge of home prices falling to an 11-month low.

After enduring some of the world's strictest quarantine regulations under the city's Covid-Zero policy for almost two years, Hong Kong residents are now facing one of the deadliest outbreaks.

More than 225,000 infections have been recorded in the current wave, though Hong Kong University researchers estimate that the true count is about 1.7 million people – almost a quarter of the financial hub's population.

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"Nobody knows where the government is going," said Mr Simon Powell, a Hong Kong-based equity strategist at Jefferies Group. "If you're a Hong Kong trader or fund manager, you've had a shocker – the performance has been awful. Throw into the mix that you're probably home schooling and your family is scared of getting sent to a quarantine camp and you might even be sick… people are having a terrible time."

Many have had enough. There were 43,689 net departures from the city in the past two weeks, the most since the start of the coronavirus pandemic, according to government data. In a bear case – where the Covid-19 outbreak peaks late in the second quarter – Bank of America analysts estimate 2 per cent to 3 per cent of Hong Kong's population could depart every month.

There are signs that the growing stress on people and financial markets is worrying the authorities. The city's banking regulator told finance executives it is lobbying the government to shorten quarantine for inbound travellers, sources familiar with the matter said. In a statement posted late on Tuesday, the government suggested it would ensure financial markets remain open during a potential citywide lockdown.

Officials are planning to restrict the movement of residents for four days at the end of this month during a mass testing exercise, according to local news outlet HK01 on Wednesday. Concern that the government would impose a lengthy lockdown imminently has prompted panic buying of everything from food to painkillers.

Despite two years of planning, the virulence of the outbreak has caught officials by surprise. The financial hub averaged eight deaths per one million people over the past 10 days, the most among advanced economies, according to Bloomberg calculations based on Johns Hopkins University data.

While most major Western countries are past the peak of their latest wave of infections, Hong Kong's current ratio is close to surpassing the nine deaths per one million that the United States recorded at the peak of its Omicron wave in January.

Artmotion Asia

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