Hong Kong’s Wealthy Move Gold Out of City on Security Law Fears
Reprinted from the FT – 07.08.2020
Legislation heightens concerns of political and legal risks in the Asian financial center. Nervous Hong Kong investors are sending an increasing amount of their stocks of the precious metal abroad to destinations such as Singapore and Switzerland.
Hong Kong’s wealthy are moving increasing amounts of their gold out of the financial hub after Beijing imposed a new national security law on the city last month, dealers in the precious metal say. Private sector investors have shifted about 10 per cent of their physical gold from the territory to countries such as Singapore and Switzerland over the past 12 months, according to Joshua Rotbart, head of J Rotbart & Co, a Hong Kong-based gold dealer and storage provider.
The trend started last year during anti-government protests in the city and has picked up with the passing of the security law, as investors fret about political uncertainty and the rule of law. “Many clients now perceive Hong Kong as riskier than other jurisdictions,” Mr. Rotbart said. After the national security law was passed, he could “see an immediate response from Hong Kong residents . . . asking to store it [gold] somewhere else”.
Pro-government politicians argue the security law, which targets terrorism, subversion, secessionism, and foreign influence was needed to stamp out the protests and restore stability. But critics are concerned the measures undermine the legal and political autonomy promised to Hong Kong for 50 years after its handover from the UK to Chinese sovereignty in 1997.
The legislation allows Beijing to try suspects in mainland China in special cases, ending the legal firewall that existed between the two jurisdictions. “Investors are moving gold from Hong Kong to Singapore because they don’t like risk and uncertainty,” said Ronan Manly, a precious metals analyst at Singapore gold storage operator BullionStar. Investors’ concerns included the city’s “stability and rule of law”, he said. “This could, in the minds of gold holders, snowball into concerns about the safety of bullion and even certainty of property rights,” he added.
The gold price hit $2,000 an ounce for the first time on Tuesday due to Covid-19 and inflation fears. China is the world’s largest consumer of gold, but the metal is restricted from being exported, making Hong Kong a more convenient location to store gold for international investors and rich mainlanders.
The city also acts as a conduit for gold inflows into mainland China. Peter Fung, head of dealing at Wing Fung Precious Metals, said Hong Kong investors bought gold in line with international market movements and not as a hedge against concerns over the future of the Hong Kong dollar’s peg to its US counterpart. But Mr Rotbart said while he did not believe political risk had markedly changed in Hong Kong, many of his mainland Chinese clients with gold in the territory now saw little difference between the city and mainland China from a political or legal point of view.
These clients had started “looking at Hong Kong as onshore and they want their gold offshore”. Some clients were also worried about an increase in crime in a city usually known for its safety, with burglaries rising 47 per cent in the first half of 2020 from 786 last year to 1,156 this year.
One Hong Kong commodity analyst, who did not want to be named because of the sensitivity of commenting publicly on the security law, said investors were worried about what would happen if they got on the wrong side of the authorities in a dispute. There was also concern over increasing US-China trade tensions. “The concern might be: if I have a dispute with a [Chinese] state-owned enterprise, which way will the legal decision go and how might that affect my assets, [or] what happens if the United States gets more crazy?” the analyst said.