Hong Kong stocks came back to earth with a thud last year as the euphoria surrounding the handover was punctured by a sickening dose of Asia's financial turmoil. The market headed skywards for the first seven months amid rising earnings forecasts, a rampaging Wall Street bull run, and a red-hip fervour fuelled by mainland money. In the end, however, all that proved illusory as the turmoil that first appeared in Thailand in June became a typhoon that dragged Hong Kong stocks down with the rest of region. Schroder Securities Asia head of research Mark Simpson said: 'We have seen the cold wind of reality sweeping across Asia. 'There was euphoria because the handover turned out not to be a negative factor. But at the end of the day the reality was that cash is king.' The Hang Seng Index (HSI) closed at 10,722.76 on December 31, having lost 2,728.69 points or 20.2 per cent over the year. The index traded in a massive range, surging to a closing high of 16,673.27 on August 7, before slumping to a low of 9,059.89 on October 28. The year saw a string of records: the market's highest one-day turnover, $46.02 billion on August 29; the HSI's biggest one-day loss, 1,438.31 points on October 28; and its biggest gain, 1,705.41 points on October 29. It also saw the highest over-subscription for a new listing, 1,276 times for red chip Beijing Enterprises, which debuted in May, and the biggest ever new listing, China Telecom (HK), in October. The market started the year innocuously enough, spending the first three months trapped in a trading range, but things started heating up from the start of April as the handover rally got underway. The HSI rocketed from 12,000 to 16,820 in just five months as the smooth transition of Hong Kong to China and a flow of mainland money into the new SAR boosted the market. Red chips and mainland-related stocks surged as investors bet the companies would be able to buy cheap assets from their mainland parents. Analysts cautioned red chips were getting dangerously overheated but few investors seemed to take notice. Asia Equity head of Hong Kong research Robin Hammond said: 'This is the most irrational market I have seen since 1987, except for a few weeks around June 4, 1989.' Grandmothers and aunties queued up outside banks and brokerages to buy scrip as everyone appeared to be getting caught up in the frenzy. Those heady gains were then wiped out almost overnight as Hong Kong succumbed to the Asian 'flu. The market plunged first in August and then more steeply in October as panicked fund managers dumped Asian stocks across the board on fears the region's long period of high economic growth was well and truly over. This crisis escalated as currency speculators attacked the Hong Kong dollar, forcing up interest rates and sparking fears the peg to the US dollar might have to be abandoned. As local stocks went into free-fall, the eyes of the world turned to Hong Kong as the tumble caused the bigger markets of the US and Europe to head lower as well. The vicious circle that had started in Thailand finally swept around the world. Vickers Ballas Securities Hong Kong sales director Antony Mak Siu-leung said: 'It is the worst scenario you can think of. All pointers are negative.' The HSI was finally pulled back from the brink by a rebound in the US, but not before the battered benchmark had fallen 47 per cent in two months. Damage to confidence had been done and turnover slumped as investors stayed away in droves. ING Baring Securities Hong Kong sales director James Osborn said: 'It was so quiet, you could almost hear a salary drop.' Most blue chips were hammered over the year as investors decided to opt for safer utility stocks. Property investment company Great Eagle shed 65.9 per cent, regional conglomerate First Pacific shed 62.6 per cent, and infrastructure company Hopewell Holdings lost 61.4 per cent. Utilities were one of the few bright spots as Hong Kong Telecom rose 28.1 per cent, China Light & Power added 25 per cent, and Hong Kong & China Gas rose 20.4 per cent. Looking ahead, most analysts do not expect the coming year to be much of an improvement. Mr Simpson said '1998 will definitely be a write-off'.