How Do Investors Perceive the Downside Risk of the Protests in Hong Kong?

Since there has been much bad news in Hong Kong since early 2019, including the Global Recession, the Trade War, the Anti-extradition Bill, and the Protests, it is hard to disentangle the effects of each event on the economy of Hong Kong. For example, I have provided a lot of evidence that the import/export and the retail sales amount figures have started to drop much earlier than June (Yiu, 2019), which implies that they are not purely the consequence of the Protests. The Hang Seng Index of the stock exchange market is also not a good indicator as it is now more dominated by mainland China companies, which therefore does not reflect much about the investors’ assessment of the Hong Kong markets.

Undeniably, all these events are inextricably intertwined, because all of them are affecting the confidence of consumers, entrepreneurs, and investors. These events would make some consumers spend less, make some entrepreneurs shrink their businesses, and make some investors drain their capital out. When all these factors mingle together, and they would reinforce each other as a vicious cycle, thus it is difficult, if not impossible, to figure out their individual event’s impacts on the downside risk of the economy.

However, interestingly there is a REIT that may shed light on how the investors perceive their impacts. This is the Mapletree North Asia Commercial Trust (MNACT), which is a REIT that owns nine commercial properties in China, Hong Kong, and Japan. But more than 60% of its income comes from the Festival Walk shopping mall at Kowloon Tong, Hong Kong. Since most investors on REITs focus on the operating income of the properties, thus the market price change of this MNACT REIT can reflect to a large extent how the investors perceive the future of the operating income of the Festival Walk.

In fact, before the Protests started in June 2019, the financial report of the REIT has made a prosperous annual growth of 3.2% in the income of the mall as shown in Figure 1. The operating income of the Festival Walk was expected to be increasing from S$246.1M in 2017/18 to S$254.0M in 2018/2019.

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Figure 1 Operating Income of the REIT. Source: 2019 Annual Report of the REIT

However, the REIT’s price has turned from its upward trend in the first half of 2019 to a downward pattern in the second half of 2019 as shown in Figure 2. The number of the transaction also seems to be increasing. It drops from the 52-week top at 1.48 to the recent bottom at 1.13, i.e. a 23.6% decrease.

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Figure 2 Stock price of Mapletree North Asia Commercial Trust. Source: Bloomberg

Since June, the Protests affect the number of visitors and thus cutting the retail sales. Yet, the Protests in June and July were mostly concentrated on Hong Kong Island, the direct impacts on the retail sales in the Festival Walk should be trivial. In fact, the biggest shopping mall REIT in Hong Kong, the Link REIT, also had a similar price pattern since July 2019, as shown in Figure 3.

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Figure 3 Stock Price of the Link REIT. Source: Bloomberg

Even though the two REITs are listed in different stock exchange markets, one is in Singapore, the other is in Hong Kong, both are Trusts holding mainly shopping malls in Hong Kong. MNACT focuses more on the Festival Walk, while the Link REIT manages many malls located at different districts. Yet, both REITs encountered a similar magnitude of stock price fall of about 20%.

Taking a closer look, they both encountered a deeper fall in Nov. MNACT’s price fell from 1.48 to 1.29, i.e. a 12.8% fall, while the Link REIT fell from 99.8 to about 88.4, i.e. a 11.8% fall. In other words, the investors had perceived such a downside risk imposed by the Global Recession, the Trade War and the Anti-extradition Bill, even before the Protests have directly affected their malls.

Then, the Festival Walk was directly hit by the Protest on Nov 12, which resulted in complete closure of the whole mall. The Trust’s manager told the press that the mall cannot be reopened before the first quarter of 2020. The sharp fall in Nov is a reflection of the market participants’ perception of the impacts of the complete closure of the mall for months.

However, interestingly the Link REIT also had a similar magnitude fall in Nov., even though its malls do not have any complete closure cases. It may imply that investors have perceived the downside risk of the business of all malls in Hong Kong in the future because shopping malls have become one of the fragile targets of the protesters.

Shopping malls have to open to the public and unlike shops on the street that can erect steel panels to protect the shopfronts, a shopping mall is hard to do any precautionary measures. Even if the mall can be repaired and reopened soon, it could not rule out any possibilities of being redamaged by the protesters in the future, if the government insists not to handle the political dispute by political means. The price fall is more likely to be an estimation of the downside risk rather than an estimation of the actual loss of the business and the cost of repair.

Just when I am writing this article, a clash between the protestors and the police is happening in a big shopping mall at Shatin town centre. The investors’ worry is valid. Shopping malls’ REIT price has become a leading indicator of the retail sales of Hong Kong, probably because the investors’ bets are reflecting the first-hand insiders’ information.


Yiu, C.Y. (2019) Does Private Consumption Drop Cause Recession or Does Recession Cause Private Consumption Drop? Medium, Nov. 13.

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