Brokers decry markets as a `bad joke'
Global stock market turmoil has left Hong Kong's once vital and enticing financial markets in such disarray that many market analysts here believe the government here may be forced to abandon its much touted laissez-faire policy in favor of more controls. Indeed, Hong Kong, which has traditionally taken immense pride in its unfettered, freewheeling financial institutions, this past week saw its stock exchange and its futures market stumble so precariously that money from two separate governments - Hong Kong and China - was needed to help prop them up.
Some financial analysts say Hong Kong's markets have weathered the current world economic storm so poorly that investors will now panic at the slightest hint of a market problem. And that means the local exchanges - which are closely tied to Britain and heavily influence other Asian markets - could remain jittery and volatile for some time to come.
Indeed, local brokers report that foreign institutional investors, especially American ones, are already deserting the Hong Kong stock market, ``disgusted'' by its recent performance. While most government, stock market, and business officials assert that Hong Kong's bustling economy is fundamentally sound, few are making that same claim for its markets.
``There is no point in pretending that Hong Kong's reputation as an international financial center has not suffered,'' said William Purves, chairman of the powerful Hong Kong and Shanghai Banking Corporation.
That blunt assessment was echoed by a host of financial anaylsts who frequently used the term ``Mickey Mouse'' to describe how Hong Kong markets appear to the rest of the world now.
``One day were were all trading like crazy, and the next day everything was a mess and the market was just a bad joke,'' said one distraught broker.
China, which has invested more than HK$333 million ($42.6 million) to protect Hong Kong's futures market from total collapse, openly criticized the markets here. Lu Ping, deputy director of China's Hong Kong and Macao affairs office, said publicly that Hong Kong's markets had ``deficiencies'' that must be corrected over time. But financial and political leaders here were so relieved to see China assuming a prominent role in plans to protect Hong Kong's prosperity that they took that criticism with barely a murmur.
Financial experts agree that, when put to the test, Hong Kong markets simply did not function properly, and they lay part of the blame on officials of the Hong Kong Stock Exchange who preemptively closed the exchange for four days while other world markets gamely coped with the spreading international panic that began on Wall Street last month.
Hong Kong was the only significant international financial center to suspend trading on its stock and futures exchanges, and the only center whose futures market was so laxly regulated that it was literally in danger of collapse. Officials acknowledged that the markets were suspended to head off widespread defaults in the futures market - the second largest market of its kind in the world - due to extensive speculation in contracts based on the Hong Kong Stock Exchange's Hang Seng index. If the futures market had collapsed, it would almost certainly have brought down the stock exchange as well.
In the futures market, the new futures commissioner suspended more than 40 traders for failing to meet margin calls. The suspensions included a firm partly owned by Ronald Li, chairman of the Hong Kong Stock Exchange.
One stock broker complained that the futures market continues to flounder. Every day market officials make new, more stringent trading rules ``to try to get some equilibrium,'' he said. ``But it's just not working.
Financial analysts say the stock exchange and the futures market have suffered such an embarassing loss of face and credibility, no one can predict when they will be back on a steady course. When the market reopened Oct. 26, investors stormed the exchange, causing the the total value of its shares to drop 33 percent - an all-time record plunge.
Even the HK$4 billion ($510 million) rescue package put toghether by private banks, the Hong Kong government, and Peking failed to generate more than a temporary market rally on Oct. 27, which was virtually wiped out by more selling on Oct. 28.