Russia debt freeze is lesson for Hong Kong
Beyond a few wobbles, global markets have proved remarkably indifferent this year to political risks – whether Russia’s incursions into Ukraine, Iraq’s descent into chaos or democracy protests in Hong Kong, which have this week tested China, the world’s emerging superpower.
While a fall in the rouble this week has flashed warnings about capital flight, the broader effects have so far gone largely unremarked. Western banks are understandably unwilling to talk publicly about Russian business. The economic impact is also hard to gauge, with the weaker currency softening the impact.
Although we are a long way from that point in Hong Kong and the circumstances are very different, they are worth bearing in mind as events unfold in the former British colony.
Do not be over concerned. Markets are not boycotting Russia because of moral outrage; they remain apolitical. Historically, global investors are unafraid of backing dictators and despots. “They would get around their morals if the value was right,” says one London banker.
A glance at a chart of weekly flows into and out of Russian equity funds this year shows footloose, anonymous money fled at tense moments, but returned opportunistically when they eased.
Regulators have added to the nervousness, perhaps – or perhaps not – accidentally. There is a fine line between stepping up checks on banks under stress and actions which increase those tensions.
Were political tensions in China ever to threaten economic links with the west, the impact would be dramatically larger. The Hong Kong protests do not yet represent a challenge as great as Tiananmen Square in 1989.
Back then, however, the world was riding a wave of globalisation. Post the collapse of Lehman Brothers, longstanding relationships between economic growth and trade have been eroded – and Russia illustrates globalisation’s new fragility.
Source: FT- Russia debt freeze is lesson for Hong Kong
