Hong Kong share prices were savaged yesterday as the market reeled from the collapse of investment bank Peregrine Investments, fears about the stability of the Hong Kong dollar and steep losses in US stocks. The Hang Seng Index plunged 773.58 points, or 8.69 per cent, to end at 8,121.06. It has dropped for the past eight sessions, shedding almost 25 per cent, and is at its lowest point since March 1995. BT Funds Management Asia vice-president Grant Forster said: 'There are so many negative factors driving the market at the moment, with Peregrine at number one, interbank rates at number two and US falls after that.' In the afternoon, the market clawed back some of its massive losses, with a 212-point bounce off the day low of 7,909.13 points. Amsteel Securities associate director Sean Li Chok-sun said: 'I think there was some short covering. I can't see investors keen to get in. There's such a lot of uncertainty.' Turnover was $13.33 billion, the busiest day this year. After the market closed, Peregrine confirmed that it was seeking to have liquidators appointed. One Peregrine employee said: 'It's like the [film] Titanic, the stern is sticking up out of the water and we're going down.' The failure had been widely expected after rescue talks with Switzerland's Zurich Group collapsed on Friday. Marc Faber & Associates director Patrick Carpenter said: 'Peregrine is all over. It's true to say that Asia has affected Hong Kong. It's biggest wounds came out of Indonesia.' Merrill Lynch managing director for risk and equity-linked products Andreas Klainguti said that compared with the plunge in October last year, banks had sold less stock to hedge covered warrant exposure as most warrants were already far out of the money. However, derivative traders said they were poring over Peregrine's covered warrants, looking for exposures where it likely had large stock holdings for hedging cover. They figured such stock would probably be dumped in the market, offering ideal short-selling opportunities. Brokers said fears over the continued stability of the dollar peg were also punishing share prices. Interbank lending rates moved higher, indicating that pressure was building on the link, although the Hong Kong dollar remained steady. Three-month money finished at 18.5 per cent, compared with Friday's 15 per cent. The overnight rate closed at 14 per cent, compared with 8 per cent at the end of last week. Banks yesterday raised their best lending rate by 75 basis points to 10.25 per cent after interbank rates firmed last week. A prime rate rise of 50 basis points had been forecast. Nikko Securities investment adviser Kent Rossiter said: 'There are genuine fears [about the peg] but they are misplaced. 'I think it will hold. The pressure, though, has never been this bad. 'This is a true test of the Government.' Yesterday, senior government officials again stated the administration's total commitment to the link. Mr Forster said: 'I do think that there'll be very strong will [by the authorities] to keep it: whether it holds, I don't know. 'It would be unlikely to see the peg go in the short term, especially with the region so weak.' Brokers said Wall Street's 222.2-point fall on Friday had added to the bearish mood.
