Hong Kong ETF Surges as Democrats Hold Ground

By Carl Delfeld of Chartwell ETF and ETFfolio

Hong Kong ETFs such as the iShares MSCI Hong Kong (EWH) surged 2.5% in morning trading as pro-democracy candidates overcame low voter turnout to do better than expected in Sunday’s Legislative Council elections, thereby retaining a critical veto power.

The pro-Beijing forces were able to maintain a majority in the legislature, in part by basking in the in the nationalistic glow from last months’ Olympic games.

Hong Kong went to poll yesterday to select the legislature’s 60 members, half of which are directly elected by popular vote, and half chosen by a complicated formula of ”functional constituencies” representing professional interest groups, such as bankers and industry.

Only 45% of registered voters took part in this year’s ballot, compared with more than 55% in the last election, which took place in 2004 amid deep dissatisfaction with the Beijing-backed government

While low turnout is normally deadly for the pro-democracy camp, it managed to hold on to 24 seats in the elections, down from 25 four years ago. Although it is far from the majority needed to reject government legislation, it gives the democrats power to veto changes to Hong Kong’s mini-constitution, the Basic Law.

Keith Bradsher of the New York Times noted that the Liberal Party, which is pro-Beijing and pro-business, lost three seats that it had been expected to win. The party’s chairman, James Tien, failed to hold his seat and resigned from the leadership of the party.

But the populist and pro-Beijing Democratic Alliance for the Betterment and Progress of Hong Kong, or D.A.B., showed unusual strength in fairly low-income areas of the New Territories with a platform that combined Chinese nationalism with appeals for the government to help blue-collar workers and the poor cope with inflation.