Hong Kong Crash Sparks World-Wide Sell-Off in Markets
Diane Coyle, Tom Stevenson and Stephen Vines, The Independent (London, England)
Stock markets plunged around the world yesterday after a catastrophic slump in Hong Kong sparked sharp falls in Europe and the US. Diane Coyle, Tom Stevenson and Stephen Vines tracked the shock wave across time zones.
The most serious stock market crisis in years started in the Far East yesterday and travelled west around the globe, shedding billions from the value of shares. Last night fears were mounting that the baton would be handed back to Asia to give investors another turbulent session today.
Throughout the day dealers feared the big one had arrived, although in most markets it was really more of a wobble than a crash. Only in Hong Kong did shares fall more than 10 per cent, with the declines in Europe well under half that. In Japan, the Nikkei index fell 3 per cent, London's FTSE closed 157.3 points down, a similar percentage decline, and Wall Street was more than 2 per cent lower within minutes of opening. Other stock markets in Europe and Latin America dived too. Investors rushed to the relative safety of bonds instead, taking long- term yields on gilts and US Treasury bonds lower yesterday. The dollar made its traditional safe-haven gains, but the pound weakened, falling 3 pfennigs to DM2.89. Recording its biggest points fall, the Hong Kong stock market yesterday plunged 1,211 points, knocking over 10 per cent off the price of shares in a single day. The carnage of the past week has seen share prices fall by almost 24 per cent and it is far from clear the end is in sight. Government- controlled China Telecom, which was 35 times oversubscribed, made its market debut yesterday with an almost 10 per cent fall on its issue price, the first time a Chinese-backed issue has flopped. Some analysts view the market's collapse as more serious than the 1987 slump and the outbreak of jitters two years later when tanks rolled into Tiananmen Square to crush China's democracy movement. Share prices have fallen by more than one-third from their high point in August due to intense pressure on the Hong Kong dollar. Its peg to the US dollar looks vulnerable because of the battering other East Asian currencies have suffered in recent weeks. The Hong Kong Monetary Authority (HKMA) deployed its considerable muscle in the currency market yesterday, using its $71.7bn war chest and pushing up overnight inter-bank interest rates to a staggering 150 per cent. Joseph Yam, its chief executive, could hardly contain his glee as he explained how the astronomical rise in inter-bank rates was going to burn speculators who had sold the Hong Kong dollar short, in anticipation of buying at a lower price. Forced to obtain Hong Kong dollars to square their positions, speculators drove it to a record high in the very narrow band against which it trades with the US dollar. The two currencies are linked at a fixed rate of HK$7.8 to the US dollar, moving marginally around the peg. Fears that the peg will be broken were addressed head-on yesterday by Donald Tsang, the financial secretary. At a hastily convened press conference he said: "Our first priority is to defend the dollar at its current parity. There is no reason for us to fail." The 14 year-old link to the US dollar is underpinned by the third-highest level of foreign reserves in the world. It is considered near heresy to question its desirability. But other regional currencies took fright yesterday. The Singapore dollar slumped to a 46-month low, while the Malaysian currency dropped to its lowest point since it was floated 24 years ago. …