Hong Kong's benchmark Hang Seng Index plunged over 1,000 points to their lowest close in nearly 23months Tuesday on concerns over a new turmoil triggered by the Lehman Brothers.
Analysts said Hong Kong shares will continue to be under pressure and 18,000 is the key support line for the benchmark HangSeng Index in the near term.
"I believe Lehman Brothers is neither the last nor the largest victim swept away by the new wave of the financial tsunami...inevitably China is not living in vacuum, " said Dong Tao, Chief Regional Economist of Credit Suisse First Boston.
The benchmark Index plunged 1052.29 points, or 5.44 percent, toclose at 18,300.61 Tuesday, its lowest closing level since Oct. 27,2006, tracking U.S. and regional stock markets, amid worries of a global financial turmoil after investment bank Lehman Brothers filed for bankruptcy protection.
Turnover rose to 88.42 billion HK dollars (11.37 billion U.S. dollars) from last Friday's 57.77 billion HK dollars (7.42 billion U.S. dollars).
"Today was a bloodbath," said Alex Tang, head of research at Core Pacific-Yamaichi, who noted that trading volume was its highest in months. "This was panic selling ... they just want to liquidate their positions."
"A further deterioration in confidence toward U.S. financial institutions and their derivative products after the collapse of Lehman Brothers is likely to continue to weigh on market sentiment across the region," said Ernie Hon, a strategist at ICEA Securities.
Phillip Capital Management strategist Y.K. Chan said 18,000 is the key support line for Hang Seng Index in the near term. But he added "we're in the middle of a crisis, so valuation offers little comfort."
Chan said China's surprise rate cut late Monday should be positive as it marks the end of credit tightening and the start ofan easing cycle on the Chinese mainland.
John Tsang, Financial Secretary of Hong Kong government, has assured the public that Hong Kong has an adequate monitoring system, and there should not be worries about local institutions' finances.
He reiterated on Tuesday afternoon the Hong Kong government will do all it can to maintain market stability, on the concern over the collapse of the U.S. investment bank Lehman Brothers which sent global stock markets tumbling.
Tsang said they have initiated a coordinating mechanism to monitor economic conditions and said that the Monetary Authority would step in if necessary to maintain market order, adding that so far there are no signs of any capital flight from Hong Kong.
Tsang told reporters the Hong Kong government is closely monitoring developments worldwide, and is in close communications with the Monetary Authority, Securities and Futures Commission and Hong Kong Exchanges and Clearing.
The monetary authorities will ensure trading on the Hong Kong stock market is conducted in an orderly fashion in the wake of Lehman Brothers' bankruptcy filing in the United States, Tsang said, noting the city's supervision and regulatory system is sound.
His remarks were also echoed by Secretary for the Financial Services and the Treasury Prof KC Chan.
Monetary Authority Chief Executive Joseph Yam said although the Lehman Brothers bankruptcy will have a negative impact on the Hong Kong markets, there will not be problems if systems operate ina normal manner.
Noting price adjustments in the markets are unavoidable due to this major turbulence, Yam said the authority can provide liquidity to markets under the current mechanism if the situation warrants.
The SFC approved the issue of restriction notices on four entities of Lehman Brothers in Hong Kong to preserve the assets of the companies and their clients, and to protect the interests of these clients and the investing public.
The four entities include Lehman Brothers Asia Limited, Lehman Brothers Securities Asia Limited, Lehman Brothers Futures Asia Limited and Lehman Brothers Asset Management Asia Limited.
Hong Kong Exchanges and Clearing Limited, the sole market operator, announced earlier Tuesday all structured products issued by Lehman Brothers will be suspended from trading in Hong Kong.
Lehman Brothers says it has stopped trading of its warrants on the Hong Kong stock exchange. The investment bank said in a statement to the Hong Kong stock exchange that it stopped trading because it had filed for bankruptcy in the United States.
The statement said trading in Lehman Brothers' warrants will be suspended until further notice and that "Lehman Brothers Asia Limited will suspend its obligations to provide liquidity for the issuer's warrants."