The silent spring

There has been a lot of news coverage on issues like the trade war, and their implications for economic activity and financial markets. With all this attention and worry, it might be surprising to note that the US and Chinese equity markets are actually some of the best performers this year.

With the spotlight firmly on China and the US, much has been side-lined, including the massive demonstrations in countries as far apart as Hong Kong and Chile, not to forget what’s been going on in Lebanon, Ecuador and Bolivia.

There are many similarities between these protests. They have severely disrupted normal activity, including economic activity and, particularly for countries such as Hong Kong and Chile, were previously considered to be relatively stable and business friendly.

The protests in Hong Kong have been going on for five months now and have led to the withdrawal of the extradition bill which initially triggered the protests. The much younger Chilean demonstrations have led to the president asking for the entire cabinet to resign while, similar to what happened in Hong Kong, the initial catalyst (the hike in metro fares) has been reversed too.

Despite some of these protests’ initial aims having been met, they mostly continue unabated. In fact, they have generally morphed into broader protests: in Hong Kong, from the extradition bill, to the bigger question of China’s rule over Hong Kong and, in Chile, from the high cost of living, to include inequality more generally and a corrupt elite.

Similarities are tempting to draw as to the context for unrest, such as economic inequality and political corruption, but there are important differences in historical context. For example, in Hong Kong, the context has been a steady erosion of freedoms by China, while in Chile, the Pinochet era constitution is perceived to be seriously lacking. But even here, there is a common thread around the imposition of unjust laws and a preference for a transparent democratic system.

So, what has it meant for these economies? The chart below shows how retail sales have recently collapsed in Hong Kong, while the economy has contracted in two consecutive quarters (technically a recession), with numbers that were much worse than expectations.

                                                                                                    Source: Bloomberg, 31/12/2004 – 30/09/2019.

This is massive for the Hong Kong economy, though has much less of an impact globally, as Hong Kong represents less than 1% of the world economy. Turning to Chile, these are the largest protests since the Pinochet era, almost 30 years ago. The economic impact is tricky to assess as its duration so far is a matter of weeks, rather than months. Nevertheless, while Chile is an even smaller economy than Hong Kong, it is by far and away the largest copper producer globally and strikes will have contributed to the recent spike in the copper price, as well as the marking down of Chilean financial markets.

We have no exposure to Chile, and the small exposure we have had to Hong Kong is to access the Chinese economy, rather than that of Hong Kong. Nevertheless, we recognise that both Hong Kong and Chile are not isolated. There are numerous other examples. Just staying with Latin America, whilst widespread disruptions are limited to smaller economies like Ecuador, Peru and Bolivia, the larger economies of Brazil and Mexico look far from content from a sociological perspective. Meanwhile, Argentina has just heralded in a populist Peronist government, after a small period of a business-friendly government, and the biggest IMF bailout ever. Venezuela too faces a desperate situation.

The media’s lack of interest has seen a relatively silent spring so far but these are signs of an increasing challenge to the current system and its seeming inability to foster more equal societies. Many thought that the financial crisis would see a recalibration of priorities across politics and societies, however this has not happened.


The value of stock market investments will fluctuate and investors may not get back the original amount invested.

For funds investing globally, currency exchange rate fluctuations may have a positive or negative impact on the value of your investment.

Forecasts are not reliable indicators of future performance.

Investments in emerging markets are potentially higher risk than those in established markets.

Important Information

For Investment Professionals only. Not for onward distribution. No other persons should rely on any information contained within this document.

Source for information: Miton as at 05/11/2019 unless otherwise stated.

The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice.

Miton has used all reasonable efforts to ensure the accuracy of the information contained in the communication, however some information and statistical data has been obtained from external sources. Whilst Miton believes these sources to be reliable, Miton cannot guarantee the reliability, completeness or accuracy of the content or provide a warrantee.

This financial promotion is issued by Miton, a trading name of Miton Asset Management Limited the Investment Manager of the Fund which is authorised and regulated by the Financial Conduct Authority and is registered in England No. 1949322 with its registered office at 6th Floor, Paternoster House, 65 St Paul’s Churchyard, London, EC4M 8AB.