Hong Kong Political Risk Remain

 The recent district council elections, however, revealed dissent among the population, with only 27.5% voter turnout, a significant drop from the 2019 elections (71%). Criticism was directed at the process requiring candidates to prove their "patriotism" and secure nominations from governmental committees. The city is characterized by a legal environment that favors business investment by providing strong intellectual property rights, facilitating the mobilization and allocation of capital, and minimizing bureaucratic procedures. Nevertheless, the legal and regulatory risks have risen from low to medium-low due to concerns that mainland China could pose threats to the city's rule of law, particularly in data privacy and access to business information. The risk of political interference is deemed medium-low, primarily from the National Security Law (NSL) enacted in 2019, impacting fundamental freedoms and resulting in detentions based on political beliefs. Both the risks of supply chain disruptions and doing business remain low. Hong Kong has a strong and expanding infrastructure network that facilitates overcoming logistical challenges; however, natural disasters and rising geopolitical tensions between China and the US could negatively affect this factor. The city is characterized by its promotion of competition, openness towards internalization, flow of information, educated workforce, and an established number of developed industries, which improves the business environment. Although, in recent months, there has been a growing concern that not only global financial conditions, but underlying and deeper factors (such as political interference) might be translated into investors being more cautious. From an economic perspective, the IMF forecasts Hong Kong to grow 2.9% both in 2024 and 2025. The anticipated increase in the general government gross debt (as % of GDP) from 7.0% in 2024 to 7.6% in 2025 indicates a less optimistic near-term outlook. The city has experienced a slow post-pandemic recovery, impacted by geopolitical tensions and a weakened external environment. The budget deficit for the 2023-24 financial year, exceeding HK$100 billion (USD 14.1 billion), results from reduced revenue and weaker-than-expected economic growth. On this matter, Finance Secretary Paul Chan has suggested increasing charges for public services, but at the same time ensuring that underprivileged groups would continue to receive support through social security. The sovereign non-payment risk is assessed as medium, with a medium-low risk associated with the government's ability to provide stimulus. Lastly, the exchange transfer risk remains medium-low. Hong Kong authorities intervened multiple times in 2023 to defend the currency peg, leading to a decrease in their ample FX reserve assets. Traders express skepticism about the authorities' ability to maintain the peg, crucial for financial stability and positioning the city as an international financial hub.