Street protests in Hong Kong at the weekend were mercifully peaceful despite rising tensions between Asia’s leading financial hub and the authorities in Beijing.
But the absence of clashes between protesters and police after 10 weeks of sometimes violent demonstrations will do little to calm the nerves of investors. They face radical uncertainty on at least two fronts: how China’s authorities will react to Hong Kong’s political crisis, and how the trade war between China and the US will play out given US president Donald Trump’s yo-yo-like alternation between confrontation and conciliation.
Deriving from those uncertainties is a third unknown: the future path of the renminbi after its break this month below the key threshold of Rmb7 to the US dollar. Any further fall in the renminbi’s value is a threat to Chinese households, investors and corporate borrowers — by far the biggest issuers of foreign currency bonds from emerging markets this year. It is also a threat to investors across the emerging world, as the currencies of China’s trading partners fall in tandem.