Hold on to your hats, it is going to be a wild week. After last week's sell-off wiped more than US$1 trillion off world stock markets and saw Hong Kong's Hang Seng index plunge 4.2 per cent from Wednesday's high, only a very brave investor indeed would bet against more falls in the coming days. But although markets are destined for a rough time, it is not the end of the world. To many investors, further steep declines in Hong Kong stocks will present an attractive buying opportunity, especially in the shares of companies that make their money from the mainland's growing consumer demand. The trigger for last week's slump was a sudden drop in the world's appetite for financial risk. Worried at the prospect of further losses from debt securities tied to the United States' sub-prime mortgage market, portfolio managers retreated from riskier assets. Banks also cut back on the supply of credit they were willing to extend to hedge fund managers making risky trades. As a result, liquidity drained away from the high-yield debt market forcing scores of companies to cancel or postpone planned bond issues. Afraid that the source of financing for mergers and acquisitions might be drying up, other investors began to back out of equity positions held in anticipation of future deals and the slump spread to world stock markets. Even worse, as the aversion to risk mounted, speculators began to unwind their carry trades. In June the value of these trades - in which investors borrow money in currencies with low interest rates such as the yen to buy assets denominated in higher yielding currencies such as the Australian dollar - rose to record levels. But over the past few weeks, investors have cut back their positions, with the number of speculative short yen contracts on the Chicago Mercantile Exchange dropping 40 per cent from the end of June. The effect on currency markets has been dramatic, with the Australian dollar falling 5 per cent against the yen last week alone (see chart). It is likely there is more turmoil to come. As investors unwind their carry trades, funding currencies such as the yen strengthen, forcing still more investors to sell assets in order to unwind their own positions. The impact on stock prices can be devastating. In February a similar carry trade scare wiped 10 per cent off the Hang Seng in a matter of days while an earlier episode in May last year forced the index down by 12 per cent. If the unwinding continues this week - and all the signs are that it will - we could see a fall of a similar magnitude. Some analysts warn the sell-off could be even more pronounced. They point out that the Vix index of US stock market volatility shot to a higher level last Friday than during either of those scares (see chart). If they are right, we could easily see the Hang Seng slide back to 20,000 or even 19,000 compared with Friday's close of 22,570. If the market does drop that much, however, the chances are that it will represent a tremendous buying opportunity. Whatever happens to global liquidity in the short term, mainland growth will be strong this year. And even if weaker US demand weighs on the mainland's exports, domestic consumption growth will remain buoyant and relatively insulated from external conditions. In those circumstances, after a 15 or 20 per cent sell-off, Hong Kong-listed mainland consumer plays such as China Mobile will begin to look like a screaming buy.