Hong Kong gains breathing space but Korea suffers further

The surge in the Japanese stock market yesterday gave a fillip to other Asian markets, particularly Hong Kong. However, Stephen Vines in Hong Kong reports that Tokyo's rise failed to help neighbouring South Korea avoid share price and currency falls.

The blue chip Hang Seng Index in Hong Kong rose 4.6 per cent both on the good news from Tokyo and on hopes that high interest rates were set to ease. Miles Rimington, from Crosby Securities, said that traders saw what was happening in Tokyo and were mindful of Friday's rise in Wall Street, ensuring that there was "certainly going to be a positive feeling".

No one is expressing unqualified optimism but market-makers have noted that the recent slump in share prices has been broken by three days of solid gains, taking the stock market up 8.45 per cent.

With the Hang Seng Index now at 10,419, comfortably above the 10,000 level, there is hope that it might test 11,000 which could be spurred by a favourable outcome to a three day "financial summit" now under way in the Chinese capital, where senior leaders are discussing financial reforms.

As usual the Chinese authorities are not forthcoming about the agenda but it is believed that discussions will focus on urgently needed reform of the banking sector, which, by and large, is technically bankrupt.

Estimates of the level of bad debt vary but it seems that some 13 per cent of loans are non-performing. The challenge for the Chinese leadership is to turn the banks into commercial institutions, operating on recognised lending criteria.

Meanwhile in South Korea the central bank has put immense pressure on the government to consider economic reform by suddenly withdrawing its effort to prevent the further devaluation of the currency.

Having declared that it was holding a "Maginot Line" to keep the Korean won below an exchange rate of 1,000 to the US dollar, the bank said yesterday it would no longer intervene in the money markets. The won promptly slipped to a historic low of 1008.6.