By Mark DeCambre, MarketWatch
Protests in Hong Kong that have persisted for the past two months could eventually deliver a more lasting blow to U.S. and global markets, market strategists and geopolitical experts told MarketWatch.
Tear-gas filled clashes between police and antigovernment protesters have continued for 10 straight weeks, with demonstrators on Tuesday shutting down flights out of the Hong Kong International Airport for a second straight day and resulting in Chinese officials using the term “terrorism” to describe the intensifying conflict. On Tuesday, protesters blocked the gates to security and immigration areas and snarled the airport, according to the Wall Street Journal .
Why are people protesting?
Protesters are railing against an extradition bill introduced in April that would see Hong Kong citizens extradited to mainland China to face trial if suspected of crimes against the People’s Republic. Protesters have made a number of further requests of the Chinese government, including amnesty for all those jailed in the current protests and the complete withdrawal of the bill.
Why is China dictating what Hong Kong does?
Sovereignty of Hong Kong was transferred to the People’s Republic of China on midnight July 1, 1997 , ending more than 150 years of British rule and wrapping up a 13-year handover process that began in 1984.
Under the terms of its postcolonial constitution, Hong Kong was intended to operate with a high degree of autonomy from China: This relationship is described as “ one country, two systems ,” and has “signified that Hong Kong enjoys its own autonomous ‘system’ within the larger system of the nation as a whole,” explained Suzanne Pepper, a Hong Kong-based writer in a March blog post .
Hong Kong uses its own local currency, the Hong Kong dollar /zigman2/quotes/210562005/realtime/sampled USDHKD +0.0232% , rather than China’s yuan /zigman2/quotes/210561991/realtime/sampled USDCNY -0.1308% , which is used throughout the mainland. Hong Kong also has its own judiciary system and is represented separately throughout the world, in places like the World Trade Organization and at Olympic Games, for example.
So what does the Hong Kong clash mean for markets?
Along with trade tensions between the U.S. and China, the confrontation in Hong Kong has rattled investor confidence.
“Tensions are rising in Hong Kong and the clashes between protesters and police are circulating around the globe, and that has chipped away at investor confidence in the West,” wrote David Madden, market analyst at CMC Markets U.K., in a Monday research note.
The Hong Kong Hang Seng /zigman2/quotes/210598030/delayed HK:HSI -1.76% tumbled 2.1% on Tuesday and is down 9% so far in August and off 11.5% over the past three months, according to FactSet data. The exchange traded iShares MSCI Hong Kong ETF /zigman2/quotes/200903343/composite EWH +0.07% , one of the most popular funds used to gain exposure to Hong Kong stocks, was down 3.2% in Monday and has fallen 9.5% so far in August and 12.4% over the past 90 days.
In the U.S., however, U.S. markets were soaring on news of a delay of some consumer-related China import duties. The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.62% , the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.44% and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.30% were jumping sharply higher.
What happens if the Hong Kong conflict worsens?
The concern is that the Chinese government could look to clamp down on what it may view as an insurrection, which may invoke memories of Tiananmen Square , when the Chinese military in May of 1989 violently cracked down on student protesters in a bloody confrontation shown around the world.