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Hong Kong rocks markets
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October 23, 1997: 7:38 a.m. ET
Thursday's large drop pushes market to 19-month low, spreads to Europe
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NEW YORK (CNNfn) - The Hong Kong stock market, already on a downward slide, took a major tumble Thursday, sending neighboring markets and European exchanges into a tailspin and leading analysts to wonder how long the reverberations would last.
It was the fourth consecutive day Hong Kong's major index, the Hang Seng, dropped. It was toppled by worries about the Hong Kong dollar and whether it will be devalued as have other Asian currencies.
The Hang Seng took a record one-day fall Thursday, plunging 1,211.47, or more than 10.41 percent, to a 19-month low of 10,426.30 It was the worst single-day drop since the crash of 1987.
Including Thursday's 10.41 percent drop, the Hang Seng has shed 23.3 percent of its value this week and 30.7 percent this month on worries about whether the Hong Kong dollar will be devalued like currencies in Thailand, Malaysia, Indonesia and the Philippines.
The source of the sell-off is short-term interest rate hikes invoked by Hong Kong monetary authorities to support its currency. The sell-off has been most visible in the banking and property sectors, two areas most susceptible to shifts in interest rates.
So far, it's been a week that has definitely captured the attention of Hong Kong market watchers.
"I think the biggest thing to scare Hong Kong was the devaluation of Taiwan. This is a country with substantial foreign exchange reserves. That's what sparked the fall in Hong Kong," said John Bender, vice president of HSBC James Capel.
The Hong Kong sell-off also spilled into Europe, hitting London especially hard. Analysts say that market is especially vulnerable to drops in Hong Kong, given its colonial past. Since many UK companies are heavy investors in Hong Kong, they have especially high exposure.
John Lomax, equity strategist at BZW, said risk is back in Europe -- at least to an extent.
"Basically, after a very long rise in the European markets, people are obviously going to be a little bit worried by the sight of extreme volatility in Southeast Asia. I think the concern is going to transit itself much more broadly to the European markets," he said.
Although U.S. markets may be affected initially by the downturn, at least one leading analyst says there's nothing in the Hang Seng plunge that should affect Wall Street over the long-term.
William Mattison of Gerard Klauer Mattison, said U.S. stocks should recover from any initial downturns brought on by Hong Kong's hard times. (164K WAV) or (164K AIFF)
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