Economists are predicting that the unrest in Hong Kong might have a long-term impact on the economy. Allen Morrison, Professor of Global Management at Arizona State University wrote recently that:
“Companies have historically chosen to set up shop in Hong Kong both because of its desirable location and its perception as a haven where the rule of law is strong, particularly compared with China. That’s been changing as more international businesses opt to move their headquarters to the mainland as its economic power has grown.
If China seeks to resolve the protests by taking more control over Hong Kong – which would likely erode its attractive legal environment – multinational companies would have one less reason to keep the city as their regional foothold. What had been a trickle of companies leaving Hong Kong may well turn into a flood – and with it an exodus of high-paying jobs.”
With that in mind, here are three companies that investors should monitor closely as they may be impacted by the city’s economic slowdown.
Hongkong Land Holdings Ltd (SGX: H78)
The property giant owns an investment portfolio that consists predominantly of assets in Hong Kong’s central office district.
If over the long-term, multinational corporations do shift their headquarters away from Hong Kong, demand for office space will fall and rental rates will decline.
Although Hongkong Land has prepared itself for weakening office rental rates by increasing the length of its leases to 4.6 years, compared to four years at the end of 2018, investors should keep an eye on updates on rental reversion rates and the office rental market in Hong Kong.
Dairy Farm International Holdings Ltd (SGX: D01)
The group, which operates supermarkets and convenience stores in Hong Kong and other parts of Asia, might also be affected. As of the end of last year, Dairy Farm operated 325 supermarkets and 959 convenience stores in Hong Kong, along with another 818 restaurants and 362 health stores.
According to Paul Chew, head of research at securities firm PhillipCapital, Hong Kong retail sales are expected to drop by double-digit percentage points in July and August.
With its large exposure in Hong Kong, Dairy Farm might see a long-term impact from the ongoing unrest.
DBS Group Holdings Ltd (SGX: D05)
Singapore’s largest bank has a sizeable operation in Hong Kong. In 2018, the group generated S$2.7 billion in income from Hong Kong and around a quarter of its net profit attributable to shareholders came from Hong Kong.
The bank also acquired ANZ’s Hong Kong retail and wealth business in 2016, increasing its exposure to the city significantly.
Tepid growth in the Hong Kong economy could be a drag on DBS’s long-term outlook.
The Foolish bottom line
The Hong Kong protests do not seem to be running out of steam just yet. This will have an impact on Hong Kong’s economy and the companies doing business there. If you own any of these companies, it is important to continue to monitor how the protests are impacting its near- and long-term profitability.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings Limited, DBS Group Holdings Ltd and Dairy Farm International Holdings Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings Ltd.