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Hong Kong Market Opens 200 Points Lower But Recovers Quickly, Analysts Say Traders Uneasy

October 24, 1997

Hong Kong Market Opens 200 Points Lower But Recovers Quickly, Analysts Say Traders Uneasy After Thursday Stock Prices Tumbled

The blue-chip Hang Seng index opened 199.46 points lower. Within 15 minutes of trading it had rebounded to 196.06 above Thursday’s closing 10.426.30, then fell back almost to the Thursday night level.

``People are scared. Investors are so uneasy, it seems like there’s compound selling pressure,″ Kent Rossiter, senior institutional sales manager at Nikko Securities Co. (Asia) Ltd., said before trading began.

Thursday’s crash was Hong Kong’s worst since the 1980s, with the Hang Seng losing 10.4 percent to expand its drop for the week to 23 percent.

The slump stemmed from fears that the Hong Kong dollar, the last Asian currency still tethered to the U.S. dollar, is vulnerable to speculative attack.

Hong Kong finance chiefs said Thursday they used foreign currency reserves to defend the Hong Kong dollar. This forced a huge rise in interbank interest rates, to 300 percent at one point, triggering panic selling on the stock market.

On Friday the Hong Kong dollar was strong at 7.72, but on the forward market it was down, indicating that traders expect the currency to be sharply weaker in 12 months.

A currency dealer for a European bank, speaking on condition of anonymity, said the panic was ``easing a bit,″ but the Hong Kong dollar was likely to fluctuate for at least a few weeks.

``I think the market will express some weakness, realistically, after the big drops in Europe and the United States. Nothing happened overnight to encourage people back, and fear is extremely strong about the government dropping the peg,″ Rossiter said.

Hong Kong government officials repeatedly stressed their commitment to maintaining the peg to the U.S. dollar.

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