Protests in Hong Kong Impact on Investors

Investors have been impacted by the protests currently taking place in Hong Kong. The protests have left their mark on those whose investment portfolios include exposure to Hong Kong in a range of ways.

Pro-democracy protestors have been occupying spaces outside government buildings in reaction to recent government decisions. The protestors are unhappy about reforms which allow future leaders to be democratically elected, but only by a comparatively small group of people who have been approved to vote by Beijing. Early on Monday morning, riot police fired tear gas at thousands of protestors, and there are concerns that the situation could further intensify before things come to an end. These protests are being called the most severe political unrest that Hong Kong has seen in the seventeen years since the former British territory was handed back to China in 1997.

The protests are having a significant economic impact, which is in turn having an effect on investors’ portfolios. A number of large banks have announced that their operations in Hong Kong are to be suspended. Many branches, cash withdrawal machines, and cash deposit machines are being closed amidst the unrest, and many staff are being instructed to go to secondary sites or to simply stay at home.

A number of businesses are also being affected by the unrest. It is believed that the most vulnerable business types will include retailers and those whose activities relate to tourism or benefit from tourist trade. This is particularly true with the approach of China’s National Day Holidays this week, usually a peak tourist season.

These economic factors are naturally impacting upon investments in the region. Those who hold investments in Hong Kong’s stock market, for example, have seen their portfolios affected by the unrest as the market suffers. By the end of Monday’s session, the Hang Seng index found itself 449 points lighter than it had been when it began. This represents a rapid 1.9% drop, with the market eventually closing at 23,229.21.

Forex traders with investments in Hong Kong have also been affected by the protests. In light of unrest, the value of the Hong Kong dollar against the US dollar plummeted. It ended up at a six month low of just 0.13 US dollars (GB£0.079).

According to IG Markets’ Ryan Huang: “The recent stream of China macro data has not been particularly strong to bolster investor confidence, and worsening sentiment will not do the markets any favours.”

Woman Nominated For Fed Position By Obama

Federal Reserve vice-chair Janet Yellen has officially been designated by US President Barack Obama to be the next head of the US central bank. He praised her as one of the US’s foremost economists and policy makers. Ms Yellen said if her position is confirmed by the Senate she would do her best “to promote maximum employment, stable prices and a stable financial system”.  She said more action needed to be carried out to support and reinforce the US economy although progress had been made recently.

The president commended Ms Yellen’s ability to build relationships and lend an ear to competing perspectives. He said in her statement that she was “committed to increasing employment and understands the human costs when Americans can’t find a job”.  If Obama’s selection is confirmed by the US Senate, Ms Yellen, 67, would soon replace Ben Bernanke, who has held the position for eight years.

Ms Yellen has served as his deputy for the two years that have passed, and would become the first woman to head the Federal Reserve. She has previously taught at Harvard University and the London School of Economics, as well as holding a series of senior regulatory posts in the US.

In terms of financial outlook, Ms Yellen, is seen as a “dove”, which means she prefers to prioritise promoting employment by keeping rates low rather than worrying too much about inflation. Her assignment had been widely foreseen since former Treasury Secretary Larry Summers withdrew his candidature last month. As Democrats have a tight grip on the 100-seat Senate, Ms Yellen’s appointment would only need six Republican votes to overcome any potential procedural obstructions. On the other hand, some critics are scrutinising her views on monetary policy and her support for previous federal stimulus efforts.

A powerful Republican figure in the Senate recently questioned whether she was the right choice. “Ms Yellen subscribes to the liberal school of thought that the best way to handle our nation’s fiscal challenges is to throw more money at them,” John Cornyn of Texas, the Republican whip in the Senate, said similarly in a statement. “This stimulus obsession is the reason the nation finds itself in the fiscal calamity it does today, and the last thing we need is a leader at the helm of the Federal Reserve who is intent on more quantitative easing that harms our economy.”

Senior Congressman Bob Corker, a leading Republican on the banking committee, said in the following statement: “I voted against Vice-Chairman Yellen’s original nomination to the Fed in 2010 because of her dovish views on monetary policy. We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed.”

However, Democrat Senator Charles Schumer insisted that Ms Yellen would win the Senate confirmation “by a wide margin”. Tim Johnson, the esteemed chairman of the US Senate banking committee, said she had “a depth of experience that is second to none”. “I have no doubt she will be an excellent Federal Reserve chairman,” he further added.

Europeans Fight Against Debt Crisis

Government officials throughout Europe are trying to find a way to reverse the debt crisis. They have imposed deep budget cuts for a couple of years now. These austerity measures have had serious implications for citizens throughout the continent. Citizens throughout Europe are speaking out against austerity and hope governments will focus on improving economic conditions for the lower and middleclass.

State of the Eurozone Economy

According to Joseph Stiglitz, an economics professor from Columbia University, most of the Eurozone is suffering a deep depression. Policy makers are reluctant to use that word, but the people of Europe know how bad conditions are. Economists believe that the austerity measures are only making matters worse. Stiglitz warns that Europe will need a decade to recover from the damage caused by these budget cuts.

Most economists agree that the Eurozone needs some structural changes. However, they said that policymakers are focusing too heavily on reforms within the individual countries. They said that they are going to need to focus on fixing the framework of the euro itself.

Citizens have thrown austerity strikes over the last year. They are calling for their leaders to stand up to the ECB and the European Commission leaders demanding austerity. Pier Luigi Bersani is pledging to stand by their request. He recently said that Italy must “leave the austerity cage.”

Nevertheless, politicians like Bersani don’t appear to have enough political clout to convince other lawmakers to reverse austerity measures. Austerity will probably remain a reality until enough people support Bersani and other lawmakers who share his views.

Will Austerity Work?

Some experts speculate that the citizens of Europe will refuse to tolerate austerity in the very near future. They may side with Bersani and other leaders who promise to stand up against the budget cuts. Politicians may feel pressured to give into their demands and increase spending.

However, austerity could fail even if leaders don’t back down on their budget cuts. Revenues may continue to shrink in the coming months, which would make it more difficult for individual states to meet their debt obligations.

Some experts have called for alternate solutions, but feel that the government doesn’t want to consider them. Stiglitz said that Germany won’t even consider any of the sound ideas that many economists have proposed. He said that Germany seems adamant about protecting the sanctity of the single currency, even though Europe is struggling to survive. Mario Draghi, the president of the European Central Bank, agrees with his sentiments. The Guardian recently quoted Draghi stating that the ECB will do whatever it takes to save the euro.

Tensions rise over Cyprus’ financial crisis

The Cypriot Parliament has been advised by the European Union and high profile bankers to raise the required 5.8 billion euros in order to be eligible for a bailout.

News of negotiations over attempts to raise the money have been confirmed by Christos Stylianides, a government spokesperson who said that there were “hard negotiations with the troika”; the troika being the EU, International Monetary Fund and the European Central Bank.

Cyprus’ Government have been facing a large amount of public pressure on the matter with protests occurring outside Parliament. Michael Sarris, the Cypriot Finance Minister had tried to obtain financial support from Russia on his trip to Moscow but failed. An alternative method of raising the funds needed was suggested which would mean the use of pension funds in order to save the country’s banks, however this has been met with strong opposition from Germany’s leader Ms Merkel.

Andreas Artemis, the Bank of Cyprus’ chairman commented, “ It should be understood by everyone… especially from the 56 members of parliament… there should not be any further delay in the adoption of the eurogroup proposal to impose a levy on deposits more than 100,000 [euros] to save our banking system.”

In response to this businesses within Cyprus have now started to decline card and cheques in favour of cash due to the uncertainty around the government’s decision on how to deal with the crisis.

There have been calls from within the Eurozone for Cyprus to reform its banking system which is currently too dependent on foreign investments. The crisis has caused foreign investors to be wary of investing money in Cyprus for fear of losing what they put in. Anton Siluanov, Russia’s Finance Minister said that there was little interest in the offshore gas reserves of Cyprus.

New Incentives System Should Be Imposed to Banks

Financial Services Authority Managing Director Martin Wheatley stated in his last speech that the main reason for PPI mis selling is the “greed encouraging” banking incentives and bonuses system that most UK banks have. Based on their investigations of high street banks, the FSA concludes that banks will need a new incentives system to restore reputation and order in the selling of financial products.

Former bank representatives and financial advisers from different banks claim that they were trained to persuade customers to purchase high-priced financial products to gain bonuses. Wheatley stated that customers were not getting a fair deal out of the situation.

The payment protection insurance claims conditions in the United Kingdom continue to improve amidst the high number of claims received by the Financial Ombudsman Service (FOS) in the past few months. The FOS states that they’ve seen an increase of 27% in the last six months, compared to 2011, having 400,000 claims against high street banks.

PPI or payment protection insurance is designed to repay loans, mortgages and credit cards in the event customers become sick or unable to work due to redundancy. The High Court has ruled that all PPI should be refunded to customers who cannot claim for PPI that was wrongly sold.

The FOS states that Barclays has 19,000 claims, Lloyds has over 22,000 and Santander has received 15,000, all in the last month.

Claims handling companies, continue to extend support for customers mis sold PPI. They offer counseling,advice and claiming services for customers willing to get all the refunds they deserve. It is advised that you seek expert help before making a claim.