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The fall of the last orchid

Orchids are considered worldwide to be an exotic flower. They can only be found in specific tropical climates and in the absence of nearly perfect conditions they cannot grow and will die.

Sadly it appears that economic freedom is becoming as delicate and rare as an orchid. 

Half-way around the world from us and most of our clients that are based in Latin America, Hong Kong is in the fight for its very survival as a bastion of liberty and free markets.

On our Telegram channel, where we post on nearly a daily basis, we’ve discussed Hong Kong’s crisis in depth. So what are all these protests about? China’s growing influence over Hong Kong. Hong Kong is a special administrative region of China but has laws that differ substantially from China. Hong Kong is supposed to be autonomous, at least until the year 2047. 

The catalyst for protests this year was a controversial extradition bill that would give China broad powers to have Hongkongers or foreigners in Hong Kong extradited to China. Anyone that lives or passes through Hong Kong has good reason to be concerned.

In 2015 booksellers in Hong Kong that sold books that were banned by the Chinese Communist Party, started to disappear. Though the booksellers disappeared from Hong Kong they somehow magically showed up in custody in mainland China. The New York Times reported on this in their article, The Case of Hong Kong’s Missing Booksellers.

When we look at the images of protestors and tear gas we’re reminded of the imagery that is all too common from Venezuela.

The stress that is mounting from the daily protests in Hong Kong is showing up in local financial markets. The Hong Kong InterBank Offer Rate (HIBOR) is experiencing volatility spikes that it hasn’t seen since the last global financial crisis in 2008-2009. 

When we look at Hong Kong equities vs global equities we can see clearly that Hong Kong is struggling. 

As we head into the next global slowdown it will be important to identify which markets are going to fall first to preserve capital and take on short positions to capture the downside moves.

In our view, Hong Kong is in danger of losing its last orchid, a loss that will impact the globe for generations to come.