Travel restrictions

Omicron Travel Restrictions Set to Shroud Hong Kong’s Economy | Fund managers

Hong Kong’s tough new restrictions in the face of the Omicron outbreak are set to weigh on the city, presenting it with problems as a regional hub for foreign multinationals and discouraging new influxes in the short term, experts have warned.

“We are seeing some capital leaving Hong Kong, as evidenced by the weakness of the Hong Kong dollar,” said Alicia García Herrero, chief economist for Asia-Pacific at Natixis Corporate and Investment Banking.

“I imagine that not only Omicron, but more importantly, delays in initial public offerings and issuances in the dollar bond market, particularly high yield due to the demise of Chinese real estate, will discourage new inflows. .

“Omicron is clearly not helping in terms of supporting entry as it has only extended the border closure and made it even stricter,” she said. Asian investor.

Alicia Garcia Herrero,

Natixis BFI

Hong Kong reported its first local cases of Omicron in the final hours of 2021, putting a damper on the planned reopening of the border with the Chinese mainland ahead of Chinese New Year.

In a rare move, the Hong Kong government immediately dramatically tightened social and travel restrictions, including banning flights from eight countries. The United States, France, Canada and the United Kingdom, members of the G7, are on the list in effect from January 8 to 21.

Fitch Ratings warned on January 7 that the Hong Kong government’s sudden tightening of restrictions on travel and social activities in response to the Omicron outbreak could pose downside risks to the economy and health measures. city ​​credit. It currently estimates that Hong Kong’s economy will grow by 3% in 2022 with a rating of AA-.

“We believe the tightening restrictions on international arrivals will create further obstacles to the territory’s ability to serve as a regional headquarters for foreign multinationals, a trend that has been emerging since 2019,” Fitch said.

“Longer term, we believe that the economic impact of any diversion of multinational business activities will be far outweighed by companies on the continent, which are likely to further increase their presence,” he said.

Bernard Chan

Regarding Hong Kong’s “zero tolerance” of local cases and strict border control with foreign countries, Bernard Charnwut Chan, chairman of the Hong Kong Executive Council – the main political advisory body to the leader of the executive – stressed that as an international city, international arrivals and activities are equally important for Hong Kong, and he agreed that a strong quarantine was turning people away.

He believes it is possible to gradually reduce hotel quarantine time for international arrivals from the current 21 days to 14, and even further to seven days, if the incubation period for the virus decreases and the vaccination rate of the city, especially among the elderly – now only about 20% – is largely improving, Chan said at an Asian Financial Forum roundtable on Tuesday.

LOW EXPECTATIONS

In the latest report this week, Morgan Stanley lowered Hong Kong’s growth forecast for 2022 to 2.5% from 3% to reflect the impact of tightened social distancing measures and the delayed reopening of borders with mainland China. .

“Before the wave of Omicron hit Hong Kong, our GDP growth forecast was already below consensus – 2.8% vs. 3% consensus. We will have to lower it further if the Omicron wave is prolonged during Chinese New Year, and also because we expect it to delay the opening with China. If it no longer starts in the second quarter, it may be necessary to lower growth to 1% or even less. This is a big shock for Hong Kong, which will likely end 2021 with a growth rate of 6.5%,” said García Herrero of Natixis CIB.

Hyde Chen,

Haitiong International

The delay in quarantine-free travel with China will weaken near-term prospects for cross-border leisure and business travel, as well as Hong Kong’s retail sector, Fitch also pointed out.

Noting the impact on the retail sector, Hyde Chen, head of asset management investment strategy at Haitong International, thinks the impact on the capital market is expected to focus only on sectors with strong exposed to short-term local retail and consumer trade, not the global market.

“We expect markets to gradually look beyond the virus scare and focus on economic fundamentals. The policies of the global central bank and the policy response of the Chinese government to stabilize the economy are, in our view. opinion, the main drivers of the capital market, ”said Chen. Asian investor.

Sharing similar views, Michael Wu, senior equity analyst at Morningstar, said he did not expect capital markets and investment activity in general to be affected.

“It showed in 2020 and 2021 as investment activities continued,” Wu said.

Acknowledging that the fifth wave of the epidemic poses a challenge to the economy, Hong Kong Finance Secretary Paul Chan Mo-po said on the blog on Sunday that the government will continue to analyze and assess how to properly allocate the resources to provide appropriate support to the economy.

Hong Kong’s next annual budget will be announced on February 23. On Wednesday, the city reported about 52 local cases of Omicron.