122 days of Sars vs Covid-19 – which is worse for Hong Kong’s markets?
Covid-19 has taken a far greater toll on Hong Kong’s financial markets and economy in seven out of 10 measures
/NOVOSTIVL/ For half a century, Albert Fong Leung-fai has withstood the varying widths of men's suit lapels, survived Hong Kong's journey from British rule to Chinese sovereignty, and weathered the city's struggles through typhoons and stock market crashes. Now 70 years old, the tailor is finally throwing in the towel. This article appeared in SCMP.
His clientele, half of whom are overseas visitors who stop by to get a suit, shirt or overcoat cut in between business meetings in Hong Kong - while his team of seamstresses and clothiers complete a made-to-measure suit in 48 hours - have disappeared, scared away first by months of anti-government protests, and now deterred by the global coronavirus pandemic.
“I see no future this time around,” in an unprecedented crisis compared with Hong Kong's struggle with the 2003 severe acute respiratory syndrome, or Sars, Fong said during a recent interview. “The business is so bad that I lost 90 per cent of business in the first four months. It was never so bad in my 50 years of working as a tailor.”
Covid-19, as the coronavirus pandemic is called, has extracted a far greater toll on Hong Kong’s financial markets and economy in seven out of 10 measures, compared with the city’s 122-day brush with Sars 17 years ago, based on calculations by South China Morning Post. The one-two punch from the protests and Covid-19 has pushed the city’s economy into its deepest recession in decades.
The current outbreak, first confirmed in Hong Kong on January 23, is less deadly than the outbreak 17 years ago, with a 0.3 per cent fatality rate compared with Sars’ 17 per cent death rate, which made the city the world’s largest epicentre for the 2003 disease outside mainland China. Covid-19 has sickened 1,056 people in Hong Kong and claimed four lives at the latest count, compared with 1,755 people infected by Sars and 299 people killed.
The economic cost was far greater this time around. The city’s Hang Seng benchmark stock index fell and the amount raised through initial public offerings (IPOs) contracted, while indicators plunged in economic output, total export, employment, retail sales and tourist arrivals. Turnover in the stock market rose during the period, owing to increased volatility as global central banks unleashed an estimated US$8 trillion to stave off a worldwide recession during the pandemic’s spread.
It's a slump that is driving the city's financial tsar to reach deep for a solution.
“This time around, the outbreak is much more severe, widespread and prolonged” compared with Sars, which was “a regional epidemic affecting mainly some regions of China, and [which] only had a limited impact worldwide,” said Hong Kong's Financial Secretary Paul Chan Mo-po, writing in response to queries by South China Morning Post. “Also, the external environment is not as favourable. The same formula we used last time will not be sufficient” this time, Chan said.
Chan announced a HK$10,000 cash handout to each of Hong Kong’s permanent residents during his February budget speech, part of the unprecedented HK$290 billion (US$37.4 billion) relief package – equivalent to 10 per cent of the city’s output – to bolster the local economy. The handout will be paid in July.
“I believe the cash payout will encourage local consumption, and improve the income of workers and enterprises, and help set the stage for economic recovery,” he said.
The pandemic gathered pace and spread to all corners of the globe in February, and it’s now afflicting almost 5 million people worldwide and killing more than 300,000 people. The health crisis drove governments to impose varying degrees of quarantine, stay-at-home orders and lockdowns. Business executives and tourists alike stopped flying to Hong Kong, causing hotels, restaurants and bars, and retail shops to sit empty. Up to 78,500 jobs were lost by the end of April, extending the unemployment queue to 202,500, compared with 54,000 jobs lost amid 300,000 jobless during Sars.
To alleviate the pain, Hong Kong’s government set aside HK$81 billion to help employers pay up to HK$9,000 in monthly salaries per employee for up to six months. Applications for the wage subsidy plan starts on May 25. The banks are also getting some help, in the form of government guarantees so that they can continue to lend money without fear of risks, similar to the support offered in 2003. The scheme, which covers more industrial sectors this time, has extended HK$2.9 billion of support to 1,300 applicants three weeks since its launch, six times more than the financial support during Sars.
“By its very nature, the pandemic will go one day, and things will eventually return to normal,” Hong Kong’s financial secretary said. “Hong Kong will hopefully be able to come out of the recession gradually in the second half of this year.”
Still, Chan’s optimism may be pushed back, if Hong Kong’s anti-government protesters return to the streets.
“Sars’ V-shaped bounce back is unlikely to repeat this time,” said Frederick Ma Si-hang, the Secretary for Financial Services and the Treasury from 2002 to 2007 when Sars wreaked its havoc in Hong Kong. “We are most likely to see an L-shaped recovery this time, because Covid-19 affects far more countries globally. The quick bounce back from Sars was also due to the influx of mainland Chinese tourists, but they may not rush back this time with the protests.”
Hong Kong’s cafes, restaurants and entertainment venues are bearing the brunt of the economic slump caused by the Covid-19 pandemic, said Allan Zeman, the entrepreneur dubbed the Father of Lan Kwai Fong for his lead in turning the area into Hong Kong’s dining and clubbing hub with 300 bars and restaurants.
“Some restaurants, which have operated for several decades, have decided to close permanently,” Zeman said, adding that many tenants are demanding between 20 and 50 per cent cuts in rent. “They passed through Sars but not the current pandemic. That is very sad.”
Still, not every number pointed downward. The average daily turnover in Hong Kong’s stock market jumped 14 per cent during the first four months of this year, as the pandemic and the financial aid by global central banks caused stock traders to rush out, only to return in droves.
Funds flooded Hong Kong, as an interest gap between Hong Kong and the US attracted speculators into the so-called carry trade, which pushed the local currency to the top end of a trading band against the US dollar. The Hong Kong Monetary Authority (HKMA) had to step into the markets six times in April, spending HK$20.7 billion to buy US dollars to bring the local currency back down into the band and preserve its peg.
For now, Hong Kong’s home prices, the most expensive in the world, are also defying the economic slump. Average residential property price dipped 1 per cent in the first 122 days of Covid-19, compared with its 11 per cent plunge during Sars. Median price may even rise by between 5 and 10 per cent from May until the end of 2020 due to pent-up demand in the market, according to a forecast by Citibank’s analyst Ken Yeung. Homebuyers may be drawn off the sidelines into the market as interest rates are likely to remain low while the city’s de facto central bank relaxes monetary policy to give the local economy a leg up, Citibank said.
Travel restrictions put an end to financial road shows, and prevented auditors from conducting on-the-ground inspections of corporate accounts. That delayed the publication of financial results for hundreds of companies, and deterred many companies from coming to the market to raise capital.
The amount of capital raised in Hong Kong through initial public offerings (IPOs) plummeted 60 per cent while Covid-19 raged on, pushing the city to fifth position in the global rankings, far worse than the 30 per cent decline during Sars. The “crisis highlights the importance of research and development in life sciences, biotech and technology, which enable changes in [our] ways of working and [in our] behaviour,” said Andrew Weir, chairman of the Hong Kong stock exchange’s listing committee, in a written comment. Four health care companies raised a combined US$1.2 billion through IPOs during the pandemic, representing 60 per cent of funds raised on the Hong Kong exchange during the period.
The Hong Kong stock exchange had to move its listing procedures and debut rituals online, three days after a guest who attended a March 20 listing ceremony at the bourse was confirmed with the coronavirus. “Covid-19 is a game-changer for all types of businesses, because people have been forced to stay home and work remotely,” benefiting any business that operates online, said Yat Siu, co-founder and chairman of online gaming developer Animoca Brands in Hong Kong. “The same did not happen during Sars. Overseas companies avoided companies in Hong Kong, which was the centre of the outbreak. Covid-19 is a global pandemic, so that sentiment of shunning Hong Kong has not occurred this time.”
The online migration of business activities and personal behaviour is here to stay even if the pandemic were to end, as shown by data of the Hong Kong Monetary Authority’s faster payment system. Average daily turnover on the system, which lets more than 4 million people transfer money through smartphones or personal computers, jumped 60 per cent to 267,000 transactions in March, compared with December.
“It has become a new normal,” Siu said. “Massive number of people have quickly become used to seeing online as the primary means for shopping, work, and playing games while staying at home. The companies that cannot shift their business models to focus their efforts online may find it difficult to survive.”
That change may be a bridge too far for Fong the tailor, who learned his craft from his late father when he was 20 years old.
Ship Street, where his 200-square foot (18.6 square metres) hole-in-the-wall shop sits, has turned into one of Hong Kong's prime dining neighbourhoods, complete with a 2-Michelin star restaurant and two eateries that charge at least HK$120 (US$15) for a designer hamburger.
Like many small and medium enterprises (SMEs) in the city, Fong’s business cannot move online. His suits, shirts and overcoats depend on personal contact with the customer for that perfect fit. Four in every 10 SMEs, which employ about 45 per cent of Hong Kong’s non-government employees, said they expected their earnings to plunge by 75 per cent or more over the next year, according to a recent survey. That has moved the HKMA to instruct the city’s 162 banks to extend a six-month loan repayment holiday to the city’s 340,000 SMEs.
“The social unrest from mid last year has already discouraged overseas businessmen to come. This year, the Covid-19 is worse. The hotels, bars, restaurants are all empty, so does my shop,” Fong said. “I have no choice but to retire, although I think I am still too young to stop working. The outbreak has cut my career short. ”