Hong Kong's protests which unfolded on Sunday night in a surreal fashion with the police deploying tear gas and pepper spray on mostly young local protestors, have raised questions over Hong Kong's viability as a financial centre in the long haul.
It was pretty much back to work for everyone by Monday morning, although some banks were forced to close branches near the protest areas.
One spokesperson at a global investment bank who declined to be named said that the bank had sent text messages to its staff early Monday morning to resume work. "We told all staff it is business as usual," the spokesperson said. "It would have been a much bigger disturbance if Central MTR was closed," the spokesperson added.
According to a release by the Hong Kong Monetary Authority (HKMA) on Monday, a total of 29 branches, offices or ATMs of 17 banks were affected and will be closed temporarily until further notice.
Bank of China (Hong Kong) notified customers on Monday that due to the “unusual situation”, services at five branches were suspended. China Citic Bank International announced temporary service suspension at two branches.
HSBC shuttered its building in Mongkok while Standard Chartered shuttered five branches, including branches in Admiralty, Pacific Place and Causeway Bay.
Parts of Hong Kong's central district, usually bustling with traffic around lunchtime, were quiet on Monday, with people milling around cordoned sections along Chater Road and Connaught Road. Towards the end of Monday, some banks and law firms told staff that they could leave earlier to avoid the traffic congestion.
The protests, which drew tens of thousands, stemmed from China's decision last month to allow Hong Kong voters to elect their leader based on a list of candidates pre-approved by Beijing.
Hong Kong markets saw a knee jerk sell off, with the Hang Seng Index falling over 400 points on Monday morning to 23,242 while the Hong Kong dollar weakened to 7.76 against the US dollar. "The dollar spot is very weak and people speculate some capital outflows," Arthur Lau, a portfolio manager at PineBridge Investments told FinanceAsia over the phone.
However, it is still trading closer to the stronger end of the permitted band, due to inflows into Hong Kong ahead of the launch of the Shanghai-Hong Kong Stock Connect.
In its release, the HKMA also said that Hong Kong interbank markets will function normally and the currency board will maintain the stability of the Hong Kong dollar exchange rate. HKMA also said it will "inject liquidity into the banking system as and when necessary under the established mechanism."
In the short-term, the protests are expected to hit Hong Kong retailers and tourism in Hong Kong as some protestors were still camped outside shops such as Sogo in Causeway Bay on Monday morning. The unrest could dampen visits from mainland tourists, who typically travel to Hong Kong this week, due to the Golden Week holiday in China.
"While still a fluid situation, the disruption to Hong Kong and the associated media coverage is likely to have negative implications for Hong Kong retailers and tourism related companies in particular as the timing is proximate to the China National Day holidays," said a UBS research note on Monday.
There are also concerns that the protests might spread, which could result in a broader economic fallout. "If the government fails to contain the geographical scope of the affected zone, if you look at what happened last night, they were trying to defend the line at Hong Kong Club, I see this as more [an] operational risk issue over the next few days," Raymond Yeung, a Hong Kong-based senior economist at ANZ told FinanceAsia over the phone.
Markets are expected to be quiet this week, with Hong Kong closed for public holidays on Wednesday and Thursday.
The bigger question is how the impasse will play out over the long term, as neither the Chinese government nor the protestors show signs of reaching an agreement. In the short-term, analysts do not see Hong Kong's position as a financial hub threatened but there are questions over its status in the long haul.
"The protests don't pose any immediate threats to Hong Kong's status as a financial centre at the moment but of course, it depends on how things evolve, especially in terms of the development of cross-border relations between the mainland and HK," said ANZ's Yeung.
Hong Kong has long been a gateway into China and developed in importance as an offshore renminbi centre, as well as a testbed for mainland reform. The protests also come at a delicate time, when China is slowly opening its capital account.
The Shanghai Stock Exchange has cancelled a media meeting scheduled to take place on October 8 due to Hong Kong's worsening situation. The meeting was intended to brief media about the Shanghai-Hong Kong mutual stock access programme.
Kim Eng Tan, S&P senior director, sovereign ratings said that he has left Hong Kong's ratings unchanged at AAA. "This is not the kind of protest that will lead to government change and widespread violence," Tan told FinanceAsia over the phone. "This is an expression of differences among Hong Kong people about the shape of the next elections. Apart from the temporary economic impact, we don't see Hong Kong's credit fundamentals affected in a big way," he added.
Tan expects the protests to be short-lived as Hong Kong does not have a high unemployment rate but notes that if it drags on, this will affect investments. "If the protests persists for an unexpectedly long time, investment decisions could be affected negatively. But other highly-rated countries -- such as France and the UK -- have seen large-scale temporary protests with little impact to the credit fundamentals," he added.
Meanwhile, Fitch kept its AA+ ratings on Hong Kong unchanged and said that it does not expect the protests to have a rating impact in the short-term.
"It would be negative if the protests are on a wide enough scale and last long enough to have a material effect on the economy or financial stability, but we don't currently see this as very likely," said Andrew Colquhoun, head of Asia Pacific sovereigns at Fitch ratings in a statement.
Colquhoun highlighted two key issues. The first is whether the political stand-off will impact Hong Kong's stability and attractiveness as a investment destination. And the second is whether the territory can resolve its political issues so that it has a government that is able to implement economic and structural policies. However, he adds that those questions "will likely be answered over months or years rather than days."
For now, there is uncertainty. "The one thing that the market does not like is the uncertainty," said Pinebridge's Lau. "The uncertainty will create a higher risk premium," he added.
(With additional reporting by Jing Song).