Take care in Hong Kong

The overhead traffic signal across the motorway from Kowloon to Hong Kong said

“Overloading causes accidents.”

I wondered whether the traffic controllers were, like the rest of the Chinese financial community, reflecting their concerns about quantitative easing (“QE”).

Ben Bernanke, the Chairman of the US Federal Reserve Board, caused mayhem last week for two reasons. Firstly he suggested that in the second half of the year the supply of US$85 billion per month financial easing might be “eased off”. Secondly, who will replace him when he is expected to stand down at the end of the year. His deputy, Janet Yellen (67), is being mentioned.

The South China Morning Post did not mince its editorial stance:

“The world has come to know who really controls financial markets.”

To place too much importance on Mr. Benanke’s words would be a mistake. Things are not as good out in the Far East:

  • Beijing is coping with a banking crisis. Their chief banking regulator said, in a rushed out statement, that there is sufficient liquidity in the system.
  • It has put its plans to restart IPOs on hold. The Shanghai Composite Index plunged 5.3% last Monday.
  • Growth forecasts are being reduced as consumers withdraw their spending power. It is possible that for the first time since the 1997 Asian crisis that China will fail to hit its central planners’ target of 7.5%.
  • The Hang Seng China Enterprises Index, which tracks mainland firms in Hong Kong, also fell heavily.
  • Gold continues its downwards fall towards $1,000 an ounce.

At a dinner on Wednesday evening overlooking Hong Kong harbour, an investment manager said to me “no more gold mines please. We only want cash flow positive businesses.”

A conversation with a representative of the London Markets left little doubt that our financial services are playing little or no part in the Far East. The HK Stock Exchange has 600 companies from mainland China, US markets another 350 companies. AIM has fallen from a peak of 68 in 2008 to around 40.

Some argue about quality but as a former director of three Chinese companies my own experience is different. I found that Directors and owners wanted to meet the standards expected of them by markets and investors.

My belief is that many of the problems arise because companies do not receive the correct preparation from their advisers. In 2008 I was asked to become a director of a company three hours outside Beijing which was having problems. When I visited them I found that the directors had virtually no understanding of what PLUS Markets was and why they had listed. The original Chinese adviser had long gone.

In Hong Kong today there are no representative offices of any UK AIM Nominated Adviser or Broker. The answer is that few firms have the capital to risk such a move.

For the bold it could prove a lucrative strategy. Hong Kong and China, despite Mr. Bernanke’s rhetoric, are buzzing and consumers have huge new found wealth.

It would be great if the London M25 had a sign over it saying

“Overloading means we’re growing again!”

 

Tony is chairman of Globe Capital Limited, based in Hong Kong, whose shares are traded on the ISDX and GXG Markets.

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