With the ongoing protests happening in Hong Kong, it would be wise for investors to avoid certain types of stocks in the near term.
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Brick and mortar retail
Given that the general public would be likely to stay away from the high streets, companies like Sa Sa International (178.HK) which sells cosmetics, skin care and baby care products are likely to be affected. The company’s Hong Kong business accounts for more than 80% of its revenue. It would be sensitive to the sentiment of the consumer market.
The number of visitors to Hong Kong fell by 39% in August year-on-year, with mainland tourists falling by over 42%. Given that jewelry are popular items purchased by visitors to Hong Kong, the decrease in the number of visitors has a great impact on sales in these businesses. Using Luk Fook Holdings International Ltd (590.HK) as an example, it derives over 60% of its sales from Hong Kong last year. It would not be surprising if sales are affected by the protests in Hong Kong.
The slowdown in local businesses will have a direct impact on local banks. With falling business transactions, there would be fewer loans being taken out, while bad debt could increase. Examples of local banks include Bank of East Asia (23.HK), Hang Seng Bank (11.HK) and Dah Sing Bank (2356.HK).
In times of uncertainty, investors are advised to be cautious in investing in stocks that are mostly dependent on the local economy.