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Hong Kong recovery revives Japanese, European markets

October 24, 1997

HONG KONG (AP) _ Hong Kong’s stock market led Japan and Europe in rebounding Friday from a devastating plunge that shook markets worldwide, but most other Asian markets lost ground.

Analysts warned that the pain is not over.

Forecasts were for a long-term slowdown in Hong Kong’s influential property market, renewed speculative attacks on its currency and continued high interest rates. That could mean an overall slowdown of Hong Kong’s vibrant economy, although no one is sure how much.

``I wouldn’t rule out that the Hong Kong share market will never again see the high of three months ago,″ said Marc Faber, an independent investment analyst.

The blue-chip Hang Seng index ended the day up 6.88 percent to 11,144.34 points as investors shopped for cheap shares. The market’s 10-percent plunge Thursday was its second worst since the global 1987 crash.

Shares also rebounded in Japan. But Seoul’s Korean Stock Exchange was down 5.5 percent for the biggest one-day loss in history. Markets in Singapore, Malaysia and Taiwan slipped again, though stocks in the Philippines had a modest gain.

Morning rallies in London and New York were short-lived.

The Dow Jones industrial average, an index of 30 multinational companies whose profits already have been pinched by the mounting economic turmoil in Southeast Asia, was down at one point more than 152 points. The Dow finished the day with a loss of 132.36 to close at 7,715.41, according to preliminary figures.

The London Stock Exchange closed lower Friday, with a key blue-chip index down 21.3 points, or 0.4 percent, at 4,970.2.

``There was always the risk of this being an infamous dead-cat bounce,″ said Chris Chaitow, a stock analyst at Robert Fleming Securities in London. ``This morning it looked like a live cat, but it lasted just a few hours and then faded away.″

Confidence in Hong Kong had been boosted by talk that local tycoons were buying shares in their companies, investments were flowing in from China and even a government-backed fund was buying.

Small-time investors crowded around public screens to watch the market moves but showed no signs of panic. Many said they planned to hold onto their shares until prices rebound.

Others noted that Thursday’s tumble followed a year of giddy rises past the 16,000 mark, which some economists had said was excessive. The market had been in the 12,000 range one year ago, not dramatically higher than Friday’s final 11,144.34 level.

Newspapers forecast tougher times for mortgage-payers, restaurants and the luxury car market because of higher interest rates.

``It doesn’t have the same feel as the ’87 crash,″ said Colin Bradbury, director of securities at Jardine Fleming. He said people were less worried about the stock market than the stability of Hong Kong’s currency, which the government said had come under speculative attack.

It was the government’s efforts to beat back the speculators that forced higher interest rates, and in turn triggered the stock sell-off.

The Hong Kong Association of Banks raised savings deposit interest rates Friday by 0.75 percentage points to 4.75 percent _ a move widely expected after individual banks lifted their prime lending rates by the same margin Thursday, to 9.5 percent.

Instead of rushing to pull out their savings in panic, Bradbury said, many investors were boosting their deposits to take advantage of the improved earnings.

The big test will be property prices, he said. ``The buyers will be staying away, and anybody who wants to sell is going to have to drop their price.″

Faber predicted a decline of 30 percent to 50 percent in Hong Kong property prices over the next six months to a year.

The government has acknowledged the economy probably won’t achieve the 5.5 percent growth it previously forecast for 1997. Banks say 1998 growth will be slower still.

Hong Kong leaders stress that even if markets suffer, their priority is to defend the currency’s peg to the U.S. dollar and maintain international confidence in Hong Kong under Chinese rule. But the peg makes the Hong Kong dollar a tempting target for speculators.

Goldman Sachs analyst Sandra Lawson predicted speculators will regroup and test the government’s will again. ``It can come in waves,″ she said.

Edward Chan, head of research at Amsteel Securities in Hong Kong, predicted the peg would go. ``The question of when depends on the economic health of Hong Kong, and how soon China will float its currency,″ he said.

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