Hong Kong’s Corporate Titans Under Siege as Protests Escalate

Young protesters clashed with riot police at Hong Kong’s airport Tuesday, causing travelers delays and cancellations for a second straight day. The city’s major companies can’t escape the political drama either, finding themselves pinned between their own staff, the protesters and Beijing.

The city’s tycoons face a thorny situation: Property is a linchpin of the local economy and demand for it could be hurt if investors are spooked by the protests. The city’s economy is lurching toward its first recession since the financial crisis, and retail and tourism are suffering.

To make things worse, the heightened tensions mean companies risk either offending China, which could seriously affect their ability to operate, or Hong Kong staff and customers—which could damage sales and morale.

The clearest example has been

Cathay Pacific Airways

CPCAY 2.89%

The flag carrier’s shares have tumbled more than 7% in just two trading days, hitting a 10-year low.

That isn’t only due to current or prospective disruption at the airport. On Friday, China’s aviation authority ordered the company to remove all employees involved in the protests from flights to the mainland, prompting Chief Executive

Rupert Hogg

to send an email staff saying the airline “must and will comply” with the authorities in Beijing.

Chinese bank ICBC issued a “strong sell” rating for Cathay Pacific Tuesday, saying the protests “will cause irreversible damage” to its valuation premium.

Cathay aside, some of the hardest-hit companies in the past two months of protests have been Hong Kong-focused companies with large real-estate businesses in the city, including

New World Development

, MTR Corp.,

Swire Pacific

and Wharf REIC Ltd. Both Wharf and Swire malls have been caught up in protests, while Swire also is the largest shareholder in Cathay.

Demonstrators flooded the airport’s arrival and departure halls for a second straight day, snarling the busy transit hub and frustrating travelers. Photo: Philip Fong/Agence France-Presse/Getty Images

MTR, which runs the city’s subway system including the train to the embattled airport, makes much of its money from developing land around and above its stations. Tear gas was fired in the Kwai Fong MTR station over the weekend. The company’s shares are down 6.5% so far this week.

Investors have started to draw keen distinctions between these companies and the many Hong Kong-listed stocks that do little business in the city. The Hang Seng China 50, representing mainland Chinese stocks listed in the city, is down just 0.3% over the past two days. Its biggest components are Chinese banks and other state-owned behemoths, which aren’t much moved by turmoil in Hong Kong.

By contrast the more domestic Hang Seng HK 35 index—which is packed with Hong Kong property developers, utilities and local banks—has dropped by 3.6% in the same period.

Calling a bottom in Hong Kong’s political morass would be risky. No solution to the running battles between protesters and police is in sight. At the moment, shares of Hong Kong’s domestic companies are pricing in disruption and inconvenience rather than catastrophe. Things look likely to get worse before they get better.

Write to Mike Bird at Mike.Bird@wsj.com

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