In the wake of the global financial crisis, Hong Kong investors have become used to stock-market volatility. However, yesterday's plunge in the Hang Seng Index, following a sell-off in Europe and the US, reflects a fundamental shift of sentiment in international markets. Amid evidence of slowing growth, the unconvincing response of the US and Europe to their debt crises has been the catalyst for pessimism and fear about the world's economic prospects.
The debt problem is huge, and there is no obvious way out. Unless reined in by revived growth and austerity measures, it carries the seeds of another recession.
The bill for the global financial crisis has come due. The US and Europe are mired in debt because governments bailed out the private sector and the financiers responsible for toxic financial products and kept public spending high to counter the impact of job losses and reduced investment by the private sector. Now the question is who bails out the governments.
This is not the world's first sovereign debt crisis. But never has one of this scale engulfed developed-world economies. Unlike the Asian financial crisis of 1997-8, when regional governments took tough measures prescribed by Western-dominated financial authorities, the developed world has papered over its debt problems with more debt. Now there is talk of the need for a third round of US government stimulus spending - financed by printing money - to ward off recession, even though the second round has just ended without noticeably stimulating employment, economic growth or, most importantly, consumer spending needed to revive the economy.
Hong Kong's economy remains based on sound fundamentals. But its external orientation exposes it to chill winds from abroad, including any slump in world demand for China's exports as a result of a slowdown. There is reason to be concerned. The world still depends on politicians reaching consensus on the bold use of policy weapons at their disposal to turn pessimism into optimism.