24 March 2019
Paul Krugman's visits to Hong Kong have coincided in the past with market turmoil. Photo: AFP
Paul Krugman's visits to Hong Kong have coincided in the past with market turmoil. Photo: AFP

What Krugman’s visit means for Hong Kong

Nobel Prize-winning economist Paul Krugman may offer good insights into the economy for investors, but his political views on Hong Kong and China may be another matter.

And his very presence in the city may not augur well for the stock market.

The Princeton professor spoke at a luncheon at the Asian Financial Forum yesterday.

He also visited Chief Executive Leung Chun-ying, raising speculation about what sort of exchange they had about economics and democracy.

Three months ago, Krugman fired a shot in his regular New York Times column over Leung’s comment that civil nomination would cause Hong Kong to end up with bad politics and policies.

Krugman ironically charged Leung with telling the truth about why China did not want to give democracy to Hong Kong.

Apart from his suggestion that Leung was telling the truth, Krugman’s interpretation of Leung as a pro-tycoon leader, criticizing him for protecting the plutocrats from the mob, missed the mark.

Krugman’s takes did not coincide with the impression Hongkongers have of our unpopular chief executive.

As we all know, CY Leung’s supporters do not include many tycoons or members of the middle classes but tend to be rural people, policemen or less savory members of society. 

What the chief executive is building is a police state in which he will not take any action to protect the tycoons unless they follow Beijing’s line.

Of course, don’t blame Krugman for missing the key points when criticizing CY Leung. After all, his strength is in economics.

Now that the Occupy Central movement is over and Hongkongers have returned to their usual mode of making money, we wonder what the professor and the chief executive had in common to talk about, especially since Krugman is an advocate for foreign intervention in global finance.

In Leung’s dictionary, Krugman would be categorized as a supporter of “external forces”.

The Nobel laureate is not known for writing top economic commentary for nothing.

I recall he was pretty accurate when we asked him what he thought about the Asian financial crisis when the Hang Seng Index was around 9,000 in the summer of 1998.

He said it would take about two or three years to recover.

He was absolutely right. The internet bubble at the turn of the millennium somewhat accelerated the rebound.

Yesterday, Krugman did not offer much by way of investment insights on Hong Kong, merely suggesting the property market is crazy because the city is just too small as a financial centre.

However, he did not see that as a problem, or at least not the kind of problem Switzerland is having now, because Hong Kong, he said, has a sound financial policy that should allow its prosperity to persist for a long time (fellow economist Chan Ka-keung, the secretary for financial services and the treasury bureau, should welcome such an acknowledgment).

If CY Leung were an economist, he would probably have a big argument with Krugman, who complained yesterday about China’s economic indicators being “fictional”; that is that they are — no surprise to economists who have done extensive research on the data — faked.

That was why Krugman said: “The future still belongs to China, but … the future is a little bit further out than we thought it was.”

If he is right again, we presume that means we should go long Hong Kong financials, short Hong Kong property and avoid Chinese macro-economy stocks.

There appears to be a strong correlation between Krugman’s visits to Hong Kong and market corrections (the Asian financial crisis in 1998 and the global financial crisis in 2008). 

Believe it or not, if the collapse of A shares on Monday turns out to be a curtain-raiser to a regional financial crisis, we should remember that Krugman warned us through his bearish comments and his presence in Hong Kong.

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EJ Insight writer

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