In a recent issue, Time magazine heaped praise on New York, London and Hong Kong, creating a new term, 'Nylonkong', for the three world cities. Hong Kong's status as the financial centre of Asia is beyond doubt. But, because its financial market is completely open, the impact of a stock crisis is felt more keenly.
Over the past two weeks, the Hang Seng Index has fallen almost 5,500 points, from a peak of more than 27,000 to about 21,700 at its lowest point. Monday and Tuesday saw the index plummet more than 3,000 points; a 14 per cent fall.
Billions of dollars were wiped off the market. Then, the US Federal Reserve unexpectedly announced a rate cut of 75 basis points, and the Hong Kong market made a strong rebound, going up 2,332 points - only for it to plunge 550 points the following day. It was a real roller-coaster ride.
Looking back, the bullish rise of Hong Kong's stock market should have ended last August when the US subprime crisis began to hit Asia, creating a significant downward adjustment here. But, to everyone's surprise, the State Administration of Foreign Exchange announced that it was planning to allow individual mainlanders to invest in Hong Kong stocks. This breathed new life into the market, reversing the downward trend and sending it to a historic 32,000 points. The markets in Hong Kong and on the mainland rose hand-in-hand, repeatedly breaking records.
Deeply worried about the stock frenzy, Premier Wen Jiabao called a halt to the implementation of the new measure. Looking back, this was a correct and much-needed decision, without which the mainland's hot money would have further fuelled Hong Kong's stock market, making the losses of the past week even more unbearable. Our mainland compatriots also managed to avoid a crisis as a result. With hindsight, the initial announcement seems like a rash move.
But the main culprit of the crisis in Hong Kong is the local media, which unashamedly created the myth of so-called stock gurus. The irresponsible, bullish commentaries of these 'gurus' sowed the seeds of greed in the minds of small investors.
Joseph Yam Chi-kwong, chief executive of the Monetary Authority, declined to comment on the market turmoil when he announced the Exchange Fund's record HK$142.2 billion earnings. He implied, somewhat tongue-in-cheek, that reporters should instead follow the self-styled gurus. By refraining from comment, Mr Yam was acting responsibly.
