South-East Asia's economic and financial crisis appears to be spreading, with Hong Kong stocks pounded for the second day in a wave of panic selling, and the Singapore dollar falling to a 42month low against the US dollar.
Both Hong Kong and Singapore had survived the currency and stock market turmoil which hit Thailand, Malaysia, Indonesia, the Philippines and South Korea in late summer relatively unscathed.
Markets across the region have fallen since Monday and the currencies of Thailand, South Korea and Taiwan all hit record lows against the dollar.
While a variety of regional causes have played their part, international fund managers appeared to be pulling out of the region due to a lack of confidence in the ability of governments to deal with the crisis.
Last weekend's stock slump in the US and fears of rising US interest rates also played a part. Analysts fear interest rates throughout south-east Asia will be forced up to protect currencies, effectively slowing economic growth. Hong Kong stocks dropped more than 550 points yesterday to close at a six-month low. The blue-chip Hang Seng Index closed at 12,403.10, down 4.38 per cent. The Hong Kong dollar, tied to the US dollar at the rate HK$7.8 since 1983, was also under pressure. Rising mortgage rates have made Hong Kong look over-priced in relation to other countries in the region, raising fears that speculators might test the 14-year-old link.
It was the decoupling of the Thai baht from the US dollar on July 2nd which started the regional crisis, forcing investors to take a closer look at the fundamentals of the fast-growing economies. The sell off battered popular China-related firms. The weakness of the Hong Kong dollar followed the shares slump but was also blamed on fears that speculators might test the link to the US dollar.
The turmoil depressed share sales for China Telecom (Hong Kong), a company which makes mobile telephones in southern China and which had been expecting a big success on its launch yesterday.
Strong buying of the US dollar against most Asian currencies sent the Singapore dollar downward yesterday. It ended the day on a 42-month low of $1.57, but remained one of the strongest currencies in the region.
