World markets set for plunge as Honk Kong crisis worsens

Renewed turmoil is predicted for the world's stock markets this week, as Hong Kong braces itself for what could be the worst bout of share turbulence since the start of the Asian economic crisis. But the government in Hong Kong yesterday ruled out intervention to save one of the region's largest investment banks.

Stephen Vines in Hong Kong, David Usborne in New York and Chris Godsmark in London report.

Sir Donald Tsang, Hong Kong's Financial Secretary, yesterday emphatically rejected calls to intervene to save Peregrine Investment Holdings, the banking and stockbroking group, which is on the verge of collapse after a pounds 120m bail-out by Zurich, the Swiss financial giant, fell through. Peregrine is still hunting for new investors but is expected to become the first major Hong Kong casualty from the Asian slump.

Seeking to reassure the markets, Sir Donald said he had examined bailing out Peregrine on Friday and concluded that its collapse would not cause "systemic problems".

He said that although some 100 banks are owed money by Peregrine, the sums were relatively small in comparison to their assets. "As I see it, the Hong Kong public is well covered," he concluded.

He also made clear the authorities would not wade in to support Hong Kong's equity markets in the event of a crash this week. "There is no case in my book for intervening in equity markets, even if you believe they are oversold," said Sir Donald.

Most traders are expecting that the stock market will crash when it opens this morning. Hong Kong stocks traded in London fell sharply after trading closed in the territory on Friday, with shares in HSBC, the banking giant, dropping almost 4 per cent. Over the weekend one of Hong Kong's most influential bankers, David Li, predicted that last week's interest rate rise would be topped by another in the near future.

Although unwilling to intervene in equity markets, Sir Donald was adamant that he would do whatever was needed to defend the exchange rate peg which ties the Hong Kong dollar to the US dollar. But he made clear that the price paid to maintain the peg would be painfully high interest rates. "I said on my appointment that during my term I would not change the link. Once you loosen it, it is gone for ever, like virginity."

Meanwhile in New York, concern is growing over the possible ripple effect of the Asian crisis on US companies' profits. US officials, led by Lawrence Summers, Deputy Treasury Secretary, have begun a tour of Asia's stricken economies, starting with Singapore, in an attempt to promote confidence.

The Hong Kong crisis hit US shares on Friday, with the Dow Jones index down 222.2 points, to 7580.4, in exceptionally busy trading. It was the Dow's worst day since its 554-point fall on 27 October last year. In London the FTSE 100 index dropped 98.8 points on Friday, to 5138.3.

Richard McCabe, chief market analyst at Merrill Lynch, said: "I would give the market a few days to try and pull itself up by its boot straps. But if we don't get something going in the next week or so, I would say it's one more sign that it could be a rough year."

At Morgan Stanley Dean Witter, however, US equity strategist Peter Canelo warned against an "orgy of pessimism" about corporate earnings because of Asia. "After Wall Street gets over its emotional reaction and the earnings reports are out, we may find some positive surprises, especially for companies that have no Asian exposures".

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before