By Rick Lear, Lear Investment Management
Claude-Michael Schonberg (from Les Misérables)
This song was penned for the Broadway blockbuster and serves as a revolutionary anthem for people to overcome adversity. The song has been used throughout the years from US-to-Austria-to-Ukraine-to-Turkey, and now in the streets of Hong Kong (HK). It is so powerful, that the song is banned on Chinese music downloading services.
Do you hear the people sing?
Singing a song of angry men?
It is the music of the people.
Who will not be slaves again!
This week we will discuss the uprising in HK in three sections:
1. History of the Conflict - In 1997, HK was returned to China after 150 years of British rule. While the Chinese-HK relationship is called “one country-two systems,” the citizens of HK have long struggled with autonomy. The tipping point occurred two months ago when an extradition bill was proposed by HK’s Chief Executive Carrie Lam. The critics of the bill fear it will undermine the independence of HK’s legal system and put citizens and foreign nationals at risk by allowing suspects to be sent to Mainland China for trial.
There are several demands by the protestors, but the bill is at the heart of this conflict. For China, October marks the 70th anniversary of the People’s Republic of China and the Mainland would like the celebration to not be tainted by this democratic display against the party.
2. US-China Relations - There are 7 million citizens in HK, but this issue carries the intensity of a billion because the Chinese Government is the receiving party. One of the Chinese Communist Party’s biggest fears is an uprising of the 1.3 billion people under communist rule.
Global events do not occur in isolation and this event is further magnified as the US-China relations are at the epicenter of a slowing global economy. The importance as it relates to the US-China trade war transitioned into a human rights issue. The concern was that the Chinese military would use deadly force against the protestors and trigger calls for human rights activists around the world to further sanction China. This would add another difficult variable to an already complicated trade negotiation.
The People’s Liberation Army did not enter HK but did display their force as a deterrent against the protestors entering the Mainland by assembling at the border. This restraint by the Chinese can be viewed as a positive sign the Chinese are willing to play within the global rules for human rights. Additionally, the implication towards a compromise in the trade war was viewed as a positive sign. This is still a very fluid situation from a human rights standpoint and while it is not resolved, stock markets around the globe have rallied.
3. Positive News is Possible - After months of protests, Chief Executive Lam withdrew the bill on Wednesday. Global stocks rallied, demonstrating the importance of this matter. Twenty-four hours later, the Chinese media announced a meeting in Washington DC that will take place in October to discuss the trade war. We believe these actions are related.
The twitchy stock market seems to be looking for any reason to go down, but this week we are reminded that positive outcomes are also a possibility and should be considered. To be clear - the withdrawal of the extradition bill does not solve all of the problems in HK-China relations. There will be more protests, but this is a positive step forward to ease tensions - for now. Further, the US-China trade talks are complicated, and we do not believe a grand deal will be reached. However, it is possible a truce is called in the short run and the fear of the worst-case scenario for the economy will at least temporarily subside.
In conclusion, it is important to hear the people sing. The voices of change and optimism can be refreshing in this world filled with negative news. While it is late in an economic cycle and there are many concerns in the global economy and politics, there is also room to consider the positive outcomes in each situation. A positive outcome may not be achieved in the short-run, however the human spirit is a powerful force and is undefeated as the world continues to move forward.
Missed a prior Song of the Week? Contact us with requests at mia@learim.com
Rick Lear is the Founder and Chief Investment Officer of Lear Investment Management. Lear is a pure investment firm founded in 2015 with focus on generating returns with measured risk. With over two decades of experience, his ability to identify global investment trends has resulted in superior outcomes for clients.
The Lear Global Vigilance Strategy is rated 5 Stars by Morningstar and ranks in the 5th percentile of managers in the Tactical Allocation category.
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