Reasons to Withdraw From Hong Kong and Move into Precious Metals Markets
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Things are heating up in the east as Hong Kong goes through its first economic recession in a decade, and the US-China trade war drags on.
Assuming Hong Kong was going through a recession on its own, there wouldn’t be much cause for concern – but the trade war has made this situation quite complicated.
The political crisis in Hong Kong shrunk the economy by 3.2% in the 3rd quarter of 2019 as public transport and tourism took a hit in the aftermath.
This sudden shrinkage and the continuing political unrest are eroding investor confidence, which might spell a liquidity crisis in Hong Kong.
For the first time in decades, $255 million was artificially injected into the economy to help shore up the damage from the capital flight in light of political uncertainty.
Carrie Lam has already warned of continuing economic decline, and mainland China’s already preparing to impose martial law in the city.
Chinese Intervention in a Crashing Hong Kong
In this mix, the Chinese economy also expects a recession owing to its trade war with the US.
The two largest economies are still engaged in a trade deadlock, and suddenly China finds itself locked out of one of the largest consumer markets in the world.
With no end destination for its goods and services, the Chinese government has turned to one of its traditional sources of capital – Hong Kong’s financial markets.
Since Hong Kong established itself as one of the most robust financial hubs in the world, it was used as a springboard for Chinese companies to raise finance and for foreign investors to get into China.
Now that Hong Kong’s slowly moving towards a financial crash, both the Chinese and the HK government are panicking.
According to the latest reports, the Chinese are actively thinking of restructuring Hong Kong both politically and economically.
Additional reports also say that China will double its troops in the territory if the protests don’t die down.
It’s pretty clear where these moves are coming from – the Chinese aren’t happy with how the trade war’s turning out, and they’re trying to clamp down on the situation.
Hong Kong’s crash won’t turn out well for the Chinese, especially considering Trump’s insistence on continuing with the trade war.
What worries investors the most is the possibility of capital control to shore up Hong Kong’s steadily declining foreign reserves.
Assuming that the controls are imposed, which seems quite likely, there’s a possibility that your investments are taken along for a ride as China and Hong Kong crash completely.
The Possibility of a Global Economic Recession
Ever since Brexit, and now the US-China trade war, economists are becoming quite vocal about the possibility of a global economic recession.
The recession in Hong Kong only magnifies the problem since the city is the center of much of the world’s financial activities.
In these moments, as the UK stumbles through a messy negotiation with the EU and both China and the US shoot themselves in the foot, the economists are probably right.
In light of these expectations, gold markets are becoming increasingly erratic since people are looking to jump ship.
If economic literature has anything productive to offer, it’s that people’s expectations of economic scenarios often become a self-fulfilling prophecy.
If people are expecting a crash, the money will continue flying out of Hong Kong, China and the US will continue with this trade war, and the uncertainty will become a well-justified belief that will lead to destructive economic consequences.
In such a time, the best move is to start investing in precious metals to prepare for the recession that’s sure to come – you are far more likely to survive the economic crash with gold hedges against inflation.
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