Ongoing political turmoil is weighing heavily on the Hong Kong market, which has suffered large losses and is now one of the riskiest markets among both developed and emerging markets. The withdrawal of the extradition bill last week brought some hope to the Hong Kong market, which advanced for the week. Despite the withdrawal, protests continued as demands expanded beyond the issue that initially sparked them.
Hong Kong started the year as one of the least volatile countries, but as protests intensified its risk climbed more than 7 percentage points from its year-to-date low of 10% at the beginning of May. As of last Thursday, Hong Kong was the riskiest among developed countries, as measured by Axioma’s Worldwide short-horizon fundamental model. Not only was Hong Kong the riskiest, but it was also the worst performer among developed countries over the past six months, with losses exceeding 10% (denominated in US dollars). At 17.5% volatility, Hong Kong’s risk was only behind that of Greece and South Korea. Hong Kong hasn’t seen this level of volatility since 2016.
See graph from the Equity Risk Monitors as of 5 September 2019: