Protesters urge massive ATM withdrawals as capital outflow fears mount
Hong Kong protesters' tactic of calling for massive withdraw of money from ATM seems to have a limited impact on the local banking system while the lingering social unrest may have seen billions of US dollars worth Hong Kong dollars fleeing to Singapore this summer.
Goldman Sachs estimated between US$3 billion and US$4 billion in Hong Kong dollar deposits had moved from Hong Kong to Singapore as of the end of August. Even so, the Hong Kong banking system still had ample liquidity (around US$1.5 trillion) in Hong Kong and foreign currencies, the bank said in a recent research report.
However, concerns about an outflow of capital from Hong Kong has been escalating as the recent invocation of emergency laws could also allow the control of capital flow, even though Carrie Lam did not specify any particular action that might follow beyond the mask ban.
The protests against the extradition bill turned violence in June have also evolved into a broad, increasingly violent, and creative struggle for greater democracy.
Social media calls to action
In mid-August, protesters' call-to-action spread through social media app Telegram and LIHKG, a local forum that is well-known for discussing the strategies for anti-government protest. Various posts called Hong Kong people to withdraw as much money as possible from their banks, especially China's banks, and change their currency into US dollars.
Netizens posted photos and videos of hard currency withdrawn from banks and some ATMs declared they were out of cash, although people only can withdraw $20,000 from their accounts via ATM per day.
This move aims to drive down the businesses of China-backed banks and the value of the local currency as well as protect their assets amid discontent and worry about the extradition bill and an increasing intervention from Beijing after Hong Kong's sovereignty returned to China, according to the posts on the forum.
“We have to use any means to show that we have no confidence in this financial hub,” said Samuel Chan, a 24-year-old accountant who has cancelled his bank accounts in Bank of China. He showed reporter photos of a stack of US banknotes that he converted from the Hong Kong dollar. “The Hong Kong government and the PRC (People's Republic of China) care much about the economy,” Chan added.
Protesters also targeted China's banks during demonstrations, spray-painting anti-China slogans on shuttered branches, vandalising their ATMs and outlets, while international counterparts such as Standard Chartered (2888) were untouched.
“Scale Is Limited”
The scale of withdrawal was really limited compared to the money held by citizens and retail investors, and was inadequate to affect the financial system, said Byron Tsang, an economics professor from Virginia Tech. He added that the act may push Hong Kong interbank offered rates up, but that impact was still small and may only last for “one or half-day and (then) back to normal”.
The city's major banks, including HSBC, Hang Seng Bank, Bank of East Asia and DBS, have said that they have a sufficient supply of banknotes and are keeping their eyes on withdrawals via their teller machines.
Fitch Rating, which downgraded Hong Kong's credit rating in September because of the political unrest, said that it believes authorities "have ample resources to maintain the Hong Kong dollar peg to the US dollar, given foreign-reserve holdings of US $441 billion." That is more than twice money in circulation.
Earlier in August, Christopher Cheung, the lawmaker representing the financial services sectors proposed to the government to regulate "indiscriminate money withdrawal" to stabilize the financial system.
However, a free-market public policy think tank, The Lion Rock Institute, strongly opposed the proposal and said Hong Kong “must fulfill the commitment of free flows of funds.” It also warned that “once the capital and foreign exchange control is implemented, Hong Kong will become a third-rate financial centre like the other neighbouring region.”
“We believe the debate on Hong Kong outflow and liquidity will remain active and the data points for September (and beyond) are critical in shaping the same,” the Goldman analysts said in the report.
Local-currency deposits declined in August by 1.6% from the previous month, the biggest drop in more than a year, to about HK$6.84 trillion ($873 billion), the Hong Kong Monetary Authority said in October. They did not attribute the slump to the protests and said "capital flowing into and out are normal".
Foreign-currency deposits at domestic and international banks operating in Singapore rose to a record S$12.8 billion ($9.3 billion) as of August, according to the Monetary Authority of Singapore preliminary data.
Some Hong Kong tycoons have started moving personal wealth offshore, including one has started shifting more than the US $100 million from a local Citibank account to a Citibank account in Singapore, as concern deepens over extradition bill and social unrest, Reuters reported in July.
The Hong Kong government in August slashed its full-year 2019 growth forecast to a range of 0%-1% from the previous 2%-3%, as increasingly violent anti-government protests and intense pressure from the escalating Sino-U.S. trade war.
"If the economy keeps deteriorating, it will affect sentiment and confidence. Investors potentially reduce their long-term investment in Hong Kong," Tsang added.
Reporting by Felix Tam and Torres Fong. Writing by Felix Tam.
《The Young Financial Post 新報人財經》