HK stocks hit 3-year low amid currency peg fears

Hong Kong stocks extended their losing run on Thursday amid investors' fears about risks to the local currency and the possible need for mainland resources to defend the city's longtime peg to the US dollar.

The Hang Seng Index fell by 1.8 percent, or 344.15 points, to finish at 18,542.15, erasing a 0.3 percent advance at midday and reaching its lowest close since June 2012.

For the first time since 1998, Hong Kong stocks fell below the value of their net assets.

China stocks were also down after a volatile session. The blue-chip CSI300 index fell by 2.9 percent to 3,081.35, while the Shanghai Composite Index dropped by 3.2 percent to 2,880.48 points.

Regional markets suffered further losses.

Ben Kwong Man-bun, Hong Kong-based executive director and head of research at KGI Asia, said, "Mounting concerns over the fragile global and regional economies, the weakening yuan and Hong Kong dollar, as well as tumbling oil prices will continue to take their toll on the city's equities market in the first half of the year."

The Hong Kong dollar traded near its lowest level since April 2007 on Thursday after it slipped for the fifth day in a row to an eight-year low on Wednesday.

The currency was steady at HK$7.8132 as of 6:30 pm on Thursday after rising by as much as 0.13 percent. It sank as low as HK$7.8295 on Wednesday, close to the lower end of the peg at HK$7.85 against the US dollar.

This fueled speculation that the Hong Kong-US dollar peg would be scrapped.

In its latest report, Credit Suisse warned that the Hong Kong dollar is coming under sustained speculative selling pressure and there is a possibility that the city is heading for another market crash like the Asian financial crisis in 1998.

However, in a worst-case scenario, the Swiss bank believes that Hong Kong will not abandon the 32-year-old currency peg.

It feels that the People's Bank of China may make efforts with other banks to support the Hong Kong market, given mainland-funded banks' active roles in the Hong Kong dollar market.

Since the beginning of the year, the Hang Seng Index has plunged by almost 3,000 points, marking its worst start to a year since the 2008 financial crisis.

Benny Mau Yingyuen, chairman of the Hong Kong Securities Association, said the local market situation is no "big deal" compared with the volatility the city has experienced in recent decades.

sophia@chinadailyhk.com