How Hong Kong Voters Just Helped U.S. Trade Negotiations…

This past Sunday, November 24th, 2019 was truly a momentous day. Millions of people braved streets that had only days before been filled with chaos and violence, to vote in record numbers and make their voices heard against an authoritarian regime.

Not that you could tell by looking at the news. The leading stories on all the major news outlets were once again all about impeachment.

But what the people of Hong Kong did on Sunday was historical.

It’s already having an impact on the markets, and it’s going to get bigger…

China Made their Bed, Now They Have to Lie in It

I’ve written about the Hong Kong protests before, but the short version of it is this:

Earlier this year, the Hong Kong government, in effect appointed by mainland China’s communist government, proposed a law that would allow extradition of criminal suspects to China.

Now, Hong Kong’s laws are very different from the rest of China’s. As a legacy of long British rule, and by contractual agreement of the transition from British rule to Chinese rule, the city has a separate constitution that guarantees freedoms of speech, assembly, and so on – liberties that do not exist, or are in very short supply in mainland China.

The extradition bill threatened to end the separate freedoms because it would allow China to extradite Hong Kongers that speak out against China, or breaking mainland Chinese law in other ways. So the people of Hong Kong began protesting.

After a harsh response from the police, combined with the government being dismissive of concerns about police brutality, the protests escalated. For months now, the city has been paralyzed by running battles between protesters and police, some have died and many more have been hurt, and the protesters feel ever more voiceless as the government pushes harder and harder.

The extradition bill itself has been abandoned (after many power struggles), but now the protesters’ demands have changed. They now want a more responsive government, investigations into the police’s handling of the protests, and other reforms.

The impact of the protests and the responses on Hong Kong have been severe, with the city entering a recession for the first time since the financial crisis.

But what happened on Sunday could change all that…

The Results Are In, Hong Kong Supports the Protestors

This past Sunday, Hong Kong held local elections. It was an historic event, with the highest turnout these kinds of elections have ever seen, at 71%. That’s up from 47% in 2015.

It was also the first time every seat was contested, forcing the default, pro-Beijing candidates to fight for their seats. With more than twice as many people voting on Sunday as in the 2015 elections, the results have sent a clear signal to the Hong Kong government, and to China. Almost 60% of the vote went to pro-democracy candidates, and 17 out of 18 local councils now have a pro-democracy majority.

The difference from the 2015 elections, where all 18 councils were held by pro-Beijing councilors, is stark:

 

Now, the vote was largely symbolic. The local councils mostly have power over very local issues, such as bus stops and leisure facilities. But it was a way for Hong Kongers to show the authorities that their sympathies lie with the protesters. In addition, local councils have a small part to play in Hong Kong’s complex way of choosing its Chief Executive, the leader of the city’s government.

The markets could have responded negatively to this result, if it was seen as prolonging the conflict. But instead, markets rose on Monday. A large part of that market lift was due to positive statements by both the U.S. and Chinese sides about trade. But the Hong Kong elections also added positively to the mix.

By giving voice to the protesters, markets are betting that violence will calm down, boosting the economy and forcing the government to negotiate.

The markets are voting for human rights and democracy, not authoritarianism. It’s also a positive vote for trade negotiations, where it will now be even more important for China to save face by making a deal with America.

It’s no coincidence that on the same day as Hong Kong announced its election results, the Chinese government released a document urging for tighter protections on copyrights and intellectual property, and harsher enforcement against companies that violate these rights. The pressure on China is mounting, and it shows.

Fighting intellectual property theft by Chinese companies has been a key demand of President Trump’s since the beginning of the trade dispute. This document signals that China is coming around to this view.

Traders have long hoped that at least a small trade deal between the U.S. and China would be signed before the end of the year. But with the date being continuously pushed further and further back, this hope has been fading.

We’ve talked before about how China is trying to run out the clock until the 2020 U.S. Presidential election.

But after the Hong Kong elections, the markets are betting China is about to negotiate more urgently.

That means the so-called BAT companies are a good play. These are the three major Chinese companies traded on American stock exchanges: Baidu Inc. (BIDU), Alibaba Group Holding Ltd. (BABA), and Tencent Holdings Ltd. (TCEHY).

All three were up more than the market on Monday morning:

If the pressure on China to seal a trade deal with America continues, expect them to keep rising.

Regardless of what cable news has to say about impeachment.

And while we’re on the subject of China, there’s something else that the Chinese don’t want anyone to know about…

The South China Sea could contain as much as 130 billion barrels of oil and 900 trillion cubic feet of natural gas. These untapped reserves are so large it is being called the “Second Persian Gulf.”

In an effort to claim these massive, highly contested oil reserves, the Chinese have spent the last several years deploying massive amounts of resources to militarize the South China Sea. They’ve even developed a weapon that they believe can defeat even the most powerful force in the world, the United States Navy.

Well, they’re in for a rude awakening, because the real story here (the one that could potentially make you rich) is that a tiny U.S defense contractor has developed a superweapon that can obliterate the Chinese threat.

The Pentagon is pouring billions into defense against a potential conflict with China, and early patriot investors could be rewarded with an exponential windfall. Click here to learn more about this incredible opportunity arising from heightened tensions with China.

Great trading and God bless you,

D.R. Barton, Jr.

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