Warren Buffett said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”
It is a pity the Hong Kong administrators didn’t consider Buffett’s sage words before kowtowing to the wishes of Beijing. Perhaps it is past caring, anymore. But in the blink of an eye, it has destroyed the credibility of Hong Kong as a financial centre, and the integrity of all those who work in it.
The fact that civil order had to be restored in Hong Kong is undeniable. But to use a sledgehammer to crack a nut can only result in serious repercussions.
As it stands, the recently-passed security law would make anything that promotes secession, subversion, terrorism, and collusion with foreign forces to endanger national security an offence. Subversion is a movable feast under the vague security law. It can mean just about anything.
Even a harmless but unflattering analyst’s report about a state-owned enterprise or a state-sponsored firm could be deemed subversive and seditious. Such is the vagueness of the new law.
We need to remember that China is very protective of its stock markets. History speaks for itself. It might not be as gushing about stock-market rallies as the naïve US president, but it will still do whatever it takes to prop up falling share prices….
…. it must because stock-market trading activity is dominated by around 85% of individual or retail investors. Heaven only knows what they might do if they should ever lose money.
In 2015 to stem the tide of market turbulence, Chinese regulators limited short selling with threats of arrest. The Chinese government even gave brokers cash to buy shares. What’s worse, Chinese state-run media urged its citizens to buy more shares as a sign of their patriotism. China will do whatever it takes to stop its stock market from falling.
That was almost reminiscent of the days of Mao’s “Great Sparrow Campaign”, when hundreds of millions of birds were killed to protect state-owned farms. The people were told to go into the fields to loudly bang their woks and saucepans to keep sparrows airborne until they eventually fell out of the sky from fatigue.
What the authorities forget was that the birds not only ate grain but insects and pests, too. So, they solved the bird problem but ended up with an even bigger headache dealing with bugs and vermin.
Hong Kong thinks it has solved the problem of mass protests. But it has now created a bigger issue with its credibility….
…. How can anyone ever trust any report from a Hong Kong-based analyst or the professionalism of anyone in the Hong Kong financial sector anymore, when an uncomplimentary report or the selling of Chinese shares could land the analyst in court to face charges that could result a lifetime prison sentence.
Hong Kong can try to put as much lipstick on the pig as it wants. The market could even remain elevated for a very long time. But investors know a pig when they sees one. So, treat everything that you read from Hong Kong with the scepticism it deserves. It is probably not worth the pixles it occupies on your screen.
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Disclosure: David Kuo does not own any of the shares mentioned.