Aurelia Butler

Alex Chung is about to lose one of his senior executives and has no idea how he is going to replace her.Chung’s technology consultancy firm is just one of thousands of businesses struggling to find qualified staff as a brain drain out of the Chinese territory intensifies. Hong Kong’s status as Asia’s premier financial centre was already under pressure from coronavirus controls put in place since 2020 and a Beijing-imposed security law but the Omicron outbreak that struck in December has deepened the city’s economic woes. On top of weeks-long quarantine for travellers, residents have been further spooked by the possibility of a lockdown and a threat to isolate positive cases in government facilities and separate children from their parents. Businesses have responded by temporarily basing staff outside the city while an increasing number of ordinary Hong Kongers have fled. In February, the city recorded a net loss of 65,295 residents.“Hong Kong has always been an ‘emigration city’. If people come in at the same time as people leave, the impact should be minimal. But the problem now is that no one is coming,” Chung told the Financial Times. Chung said the shrinking talent pool made expanding his business difficult. “More fresh graduates, including mainland and overseas students graduating from local universities, are now looking to work elsewhere than Hong Kong these days,” he said.

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The exodus, combined with stricter social distancing and border controls, has prompted warnings that Hong Kong’s economy could be “permanently” damaged and retreat back into recession.The economy recovered in the second half of last year after entering its first recession in a decade in 2019 after sometimes violent pro-democracy demonstrations. But analysts expect a return to negative growth as the city cleaves to its “dynamic zero” policy aimed at eliminating cases. “Either zero-Covid or dynamic zero, the government can rename it in whatever way . . . but the consequence is a lack of economic activity,” said Gary Ng, a senior economist with Natixis, an investment bank.Ng predicts an economic recession in the first half of 2022 and 1 per cent growth for the full year. “What we are seeing is the divergence of Hong Kong versus the rest of Asia in 2022, he said. “Most other economies are seeing a relaxation of restrictions.”Despite the gloom, Hong Kong’s solid fiscal reserves of an estimated HK$946bn (US$120bn), or 33 per cent of gross domestic product, have helped shield the city from any economic shocks. “Hong Kong’s strengths, which include the [government’s] significant fiscal and external buffers and highly effective economic institutions, continue to offer resilience to shocks and negative long-term trends,” Moody’s rating agency said last week. But economists predict that the anxiety gripping the city could mean fewer companies basing fewer staff in Hong Kong and businesses registering their revenue elsewhere, chipping away at the tax base.Covid restrictions have prompted economists to warn that fewer businesses would base staff in Hong Kong © Bertha Wang/Bloomberg“There is increasing concern that a brain drain out of Hong Kong will affect the ecosystem, where people from all over gather together. Hong Kong is based on free flows of people and capital,” Ng said. “My worry is that if this aspect has been lost, and if these [restrictions] continue for a long time, these changes could be permanent.” A policy to isolate even asymptomatic cases in government quarantine as well as the separation of Covid-positive children from their parents sparked fear among many professionals. In an effort to assuage some of those concerns, the Hong Kong Monetary Authority has told banks in recent weeks that their staff were unlikely to be forcibly quarantined in such facilities, two people with knowledge of the discussions said. “They are taking the initiative to talk to the financial community, but it’s probably quite late in the game,” one of the people said, referring to the exodus. Another big frustration has been the government’s refusal to articulate a Covid exit strategy or to offer a definitive answer on when citywide testing and a lockdown would begin. Stephen Chong said his accounting firm had attracted a 10 per cent increase in clients after many in his profession emigrated. “Dozens of accountants I know, most of them working at big firms, have left Hong Kong over the past months,” Chong said.

Increased social distancing restrictions that accompanied the latest outbreak have suppressed consumption, prompting economists to revise down their GDP growth forecasts. Bank of America projected a 1.6 per cent growth rate for the year with a possible recession in the first half, while a Bloomberg survey of economists predicted a contraction of 1 per cent in the first quarter.Economic activity in the city, as measured by IHS Markit Purchasing Managers’ Index survey, plummeted in February to 42.9 from 48.9 in January, the lowest recorded in 22 months. Even some pro-government businesspeople have raised the alarm. “Hong Kong is facing an exodus of educated workers on a scale not seen since the early 1990s,” said Peter Wong, chair of the Hong Kong General Chamber of Commerce and former HSBC Asia Pacific chief executive. “This will have a material knock-on impact on the economy . . . there is real cause for concern if we cannot stem the brain drain.” More

WASHINGTON (Reuters) – A default on Russia’s sovereign debt would add further pain to Russia’s economy and financial system, making it harder for Moscow to find new lending sources and raising future borrowing costs, a U.S. Treasury official said on Monday.The official told Reuters the Treasury believes there are limited direct exposures in the U.S. financial system to Russian sovereign bonds and the main impact would fall on a Russian economy already reeling under the weight of Western sanctions.”A default would make it increasingly difficult for Russia to find new lenders, and those who do lend to them will demand higher interest rates, leading to a further drain on the Russian economy,” the official said.Russia, which is pursuing an increasingly destructive invasion of Ukraine, has $117 million in payments due on Wednesday on two dollar-denominated eurobonds. Its finance ministry has said it will make the payments in roubles if sanctions prevent it from paying in dollars – a move markets would view as a default.Western sanctions have immobilized the foreign exchange assets in Russia’s central bank and prohibited international banks from dollar and euro transactions with sanctioned Russian financial institutions – including the central bank – complicating any payments.Deputy U.S. Treasury Secretary Wally Adeyemo earlier told CNBC that Russia’s choices in how it pays its debts will drain resources from President Vladimir Putin’s ability to continue the war in Ukraine.”Those choices will ultimately put (Putin) in a position where he has to make a decision about whether he continues the invasion or stops that invasion,” Adeyemo said. The Russian eurobonds in question, maturing in 2023 and 2043, traded at 20 cents on the dollar or lower on Monday. They are among the first to have scheduled payments after Russia was hit by sanctions over its invasion of Ukraine.The U.S. Treasury official said the dramatic falls in the price of Russian sovereign bonds suggested a high probability of default.”Investors are paying close attention to payments coming due soon and are preparing for alternative outcomes,” the official added. More

Raskin’s “previous public statements have failed to satisfactorily address my concerns about the critical importance of financing an all-of-the-above energy policy to meet our nation’s critical energy needs,” Senator Joe Manchin, a conservative Democrat from West Virginia, said in a statement.”I have come to the conclusion that I am unable to support her nomination,” he said.With Manchin casting a thumbs down on her nomination, Raskin would need to win over at least one Republican in the evenly divided U.S. Senate to have a hope of being confirmed.Raskin, however, is the most contentious of Biden’s five nominees to the Fed’s Board of Governors and faces strong Republican opposition. The Democratic president also has nominated Fed Chair Jerome Powell for a second term.Manchin’s announcement “probably” ends her nomination “as a practical matter,” Senator Pat Toomey, the Senate Banking Committee’s top Republican, told Bloomberg TV. “I’m not aware of any Republican support for Ms. Raskin.”After Manchin’s statement, the White House signaled it was sticking with her and was trying to line up Republican support. Senator Susan Collins, a moderate Republican whose support Democrats have courted on key votes in the past, told reporters she also would not vote for Raskin, citing “gaps in experience” among other issues.Toomey and his fellow Republicans on the banking committee have blocked Raskin’s nomination from advancing by refusing to appear for a panel vote on the Fed nominees. They say past remarks indicate she would further a green energy policy that they fear could reduce fossil fuel companies’ access to capital.Manchin, who represents the country’s second-biggest coal producing state and one that voted overwhelmingly for former President Donald Trump in the 2020 election, has been a persistent roadblock for Biden administration initiatives.Powell, expected this week to announce the first in a series of interest rate hikes to combat soaring inflation, has broad bipartisan support. Several Republicans have also said they will vote to confirm a second Fed nominee, Davidson College’s Philip Jefferson. Toomey on Monday told Bloomberg TV he would vote against Biden’s pick for Fed vice chair, current Fed Governor Lael Brainard, as well as against Michigan State University’s Lisa Cook, who if seated would be the first Black female Fed governor. More

In a securities filing, the Warren Buffet-backed star of Latin America’s fintechs said the change does not have a significant impact on its “business model or our ability to grow.”Nubank’s U.S.-listed shares were up nearly 2% at $6.04 after market. Despite Monday’s bump, however, Nubank’s shares have lost nearly 37% so far this year, in line with souring investor sentiment in the broader tech market.On Friday, Brazil’s central bank announced tougher rules for fintechs, subjecting payment institutions to regulations based on their size and complexity, while also raising standards for required capital.The new framework, which will start taking effect in January 2023 with full implementation by January 2025, will extend the proportionality of regulatory requirements currently used for conglomerates of financial institutions to include financial conglomerates led by payment institutions. More