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Earnings season — light shed on the costs associated with the Hong Kong protests

  • A Hong Kong student who suffered head injuries falling from a multi-storey car park has died.
  • Chow Tsz-lok went into hospital after the incident on Monday but on Friday became the first fatality of the political troubles.
  • The protests, which have been going on for five months continue to evolve but the registration of the first fatality marks a move towards a darker place.
  • Throughout the time, leaders of the business and commerce sectors have tried to put a positive spin to try and maintain ongoing prosperity, but as corporate earnings are released. the extent of the damage is becoming clear.

Chow Tsz-lok was a second-year student of computer science at Hong Kong University of Science and Technology (HKUST). He suffered a severe brain injury after he reportedly fell from the third to second floor of a car park in the early hours of Monday morning. Little detail is known about the incident, which took place near an area of confrontation between protesters and police.

Despite the best efforts of the staff at Queen Elizabeth Hospital, he died on Friday. For students at the university, emotions are running high. Many kept a vigil through the week, and some are due on Thursday and Friday to take part in their graduation ceremony. Even the staff are feeling the additional pressure brought on by Tsz-lok’s death. Wei Shyy, the HKUST president, was in tears as he announced the bad news to those gathering for the second day of the university graduation ceremony.

“Chow Tsz-lok has passed away… We will go to the hospital as soon as this session finishes.”

Source: South China Morning Post

Source: South China Morning Post

The audience then demonstrated the complexity of the situation. All observed a moment of silence and some students took the opportunity of being asked to come to the stage to hold up their palms, a symbol of the protesters’ five demands. For five months, the territory has simultaneously shared a feeling of loss and surprise at the unusual situation it finds itself in, but also defiance.

Source: Reuters

Weekends are the time of peak confrontation. Friday sees many residents and investors sharing concerns about what next direction might be. The number of people taking part in the rallies has dwindled from the millions who participated in June. But the profile of the events has been maintained by an increase in violence and vandalism by protestors and an escalation of police force. Many of the recent protests have not been granted permits by the authorities, which makes them illegal activities from the outset. The stakes have been raised by both sides and ultimately led to the very unfortunate demise of Chow Tsz-lok.

 

Divergence

The situation is fluid and emotions are running high. It appears a long shot that this weekend will not see further divergence between the two sides of the argument. The CCTV in the car park, which has been shared has shown some images of Chow on the premises. However, there is no record of the events immediately surrounding his death. The events that occurred just past midnight coincided with a group of protestors trying to disrupt a police officer’s wedding, which was taking place at a nearby hotel. It’s not known if Chow was part of that group, but some protestors with a state-vs-the-people viewpoint are letting their suspicions run further and are asking why the ambulance that was called took so long to arrive at the scene?

 

Fairytale ending?

The tragic events mark a significant shift in the political and economic landscape of Hong Kong. The risk of further deterioration in the business environment comes on a day when investors in Disney (NYSE:DIS) see the poor performance of the Hong Kong Disneyland Resort spelt out in black and white. The theme park makes up part of the Disney portfolio of international resorts. By operating sites in several global locations, Disney has managed to diversify its risk meaning the impact on the firm’s total profits is dissipated. The company’s stock rose on the release of earnings figures, buoyed by better returns in other business areas. Overall, the firm’s quarterly revenue was $19.10bn, which was higher than the forecast of $19.04bn. In short, the firm is doing well and Hong Kong is missing out on making similar returns.

Disney share price (NYSE:DIS) — year-to-date:

Source: TradingView

 

Christine McCarthy, chief financial officer at Disney, was reported by CNBC as saying:

“Circumstances in Hong Kong have led to a significant decrease in tourism from China and other parts of Asia and based on the trends we saw in Q4, and what we are seeing so far in Q1… We expect operating income at Hong Kong Disneyland to decline by about $80 million for Q1.”

Source: CNBC

The reduced footfall has been reflected in the detail of the company’s financial statements.

Operating income in the Disneyland HK fell by $55m during Q4. The firm’s own estimate for the next quarter is a further decline, this time by US $80m.

Disney’s operations are well diversified, but for Hong Kong, the pain is acute. The poor performance of the Hong Kong site demonstrates quite how badly the Hong Kong tourism sector has been hit.

As ever, the risk or nature of mainland intervention casts a shadow on the territory, which benefits from being seen as a portal into the rest of China rather than part of it. Hong Kong leader Carrie Lam has this week met with Chinese President Xi Jinping. In a statement released afterward, she indicated that, for now at least, there appears to be no policy shift. She said:

“He expressed care and concern about Hong Kong, especially given the social disturbances that we have seen in the last five months and he expressed support for the various action taken by Hong Kong Special Administrative Region government.”

Source: Reuters