THE Hong Kong stock exchange is bracing for the opening of trading tomorrow as investors scramble to offload shares after the biggest one-day fall in three US indices on Friday.
Analysts forecast panic selling could push the Hang Seng Index below 15,500 points if investors follow Taiwan, the only market to trade yesterday. The Taipei index plunged 5.4 per cent.
Kenny Tang, associate director of research at Tung Tai Securities, said: 'The Hong Kong market is worried about the prospect of another United States interest rate rise, and sentiment will weaken now the Nasdaq has dropped below the critical 3,500 level.' People should expect big markdowns and panic selling tomorrow, said Howard Gorges, vice-president of South China Brokerage, warning there could be worse to come.
'This may not be the bottom yet, though we have seen a correction here already.' Friday saw record-breaking point drops on the three US indices, with the Dow Jones Industrial Average down 617.78 points, or 5.66 per cent, to 10,305.77, as financial stocks lost all their recent gains. This leaves the Dow down 10.4 per cent for the year so far.
The technology-dominated Nasdaq composite index plunged to finish 9.67 per cent, or 355.49 points, lower at 3,321.29. This took it back to November levels, leaving the index down 25 per cent, or 1,220 points, on the week and 34.2 per cent off its March 10 peak of 5,048.62.
The broader Standard & Poor's 500 index fell 83.20, points or 5.78 per cent, to end at 1,357.31.
The main reason for Wall Street's plunge appears to be the rise in US consumer prices last month, raising fears of increasing inflation, which puts pressure on the Federal Reserve to push up interest rates to dampen growth.
But US industrial production and retail sales figures show no sign of losing momentum. The Federal Reserve has already raised interest rates five times in the past year - by a quarter of a percentage point each time - in a bid to slow things down, but to no avail.
Analysts expect the next US policy-making meeting on May 16 to result in a sixth successive rate rise, this time by a half percentage point.
Ken Davies, chief economist and bureau chief at EIU Asia, said he was not surprised by Wall Street.
'The market has been over-exposed for a while now, but it is always hard to gauge exactly when the fall is going to happen.' Other analysts thought the US markets were over-reacting.
'Inflation isn't that bad and the Fed's policy isn't that new,' said South China Brokerage's Mr Gorges, adding that the Nasdaq had been heading for a fall for some time.
The inflation figures were just a catalyst, he said, and should let some air out of the Wall Street balloon.
The panic selling could prove a buying opportunity as the shares of good companies were discounted along with the rest, he said.
'You may not be buying at the bottom, it may drop further, but I don't think it's meltdown.' Market conditions were different to the over-valued days of 1997, he said.
Whatever short-term havoc happens, Hong Kong's sound economic fundamentals should ensure the pain is brief.
'Only the shares with no earnings and poor concepts should suffer long-term, and they have already had a correction,' said Mr Gorges. 'Hong Kong's market is in reasonable balance.' This contrasts to the US, he said: 'Their economy is actually going much too fast, so this could be helpful in sobering up America's consumers.' Tung Tai Securities' Mr Tang said: 'I expect the Hang Seng to drop to 15,000 on Monday. Although we'll follow New York, turnover in the Hong Kong market is low, so there'll be low selling pressure.' He did not feel it was a bear market. There would be 'more short-term volatility, but we may have to wait till July for an upturn', he said.