Market volatility spikes as investors assess impact of Occupy Central

Local stocks and the Hong Kong dollar fell to their lowest levels in recent months and ratings agencies expressed concern for the city's long-term credit rating as the scale of the demonstrations and the controversial police response took investors by surprise.

"The timing of the escalation caught the business community a little off guard," said Mark Konyn, chief executive of Cathay Conning Asset Management. "Investors will be concerned if the protests become more violent or if the stand-off lasts for an extended period resulting in significant disruption of business."

The stock market closed down 1.9 per cent yesterday to 23,229.21 points, its lowest level in two-and-a-half months. Property and retail stocks were hardest hit over concerns that sustained protests would deter mainland visitors during the National Day holiday, traditionally a week-long shopping bonanza for the city's retailers.

The Hang Seng Volatility Index, a forward-looking predictor of volatility in the stock market, jumped 23.88 per cent and hit its highest level in six months, with no sign during trading hours of any compromise from either the government or protesters.

Investors might reassess Hong Kong's top-tier rating and attractiveness as a financial centre if protests were drawn out and the city's institutions and "one country, two systems" political model were undermined, said Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch Ratings.

He said investors were also wondering whether Hong Kong could "find its way towards having a government that commands the basic level of popular consent required" to implement economic policy.

Moody's analysts warned in a report published before the weekend demonstrations that "if the discord persists, diminished confidence could start to erode Hong Kong's standing as a global financial centre, which would be clearly credit negative".