VZCZCXRO4796
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #1823/01 2741002
ZNR UUUUU ZZH
R 301002Z SEP 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 5923
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 001823 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Hang Seng Plummets, Rebounds on Expected New U.S. Bailout 
Bill 
 
REFS: A) HONG KONG 1801, B) HONG KONG 1790 
 
¶1. Summary:  The Hang Seng Index opened down sharply on news that 
the U.S. Congress had rejected a USD 700 billion rescue plan and 
word of the subsequent collapse in the U.S. and European stock 
markets.  The Hang Seng Index opened at 980 points or 5.5 percent 
lower, and fell even further in early trading before bouncing back 
at mid-day.  Comments by senior Hong Kong government officials, 
including the Chief Executive, early in the day reaffirming the 
safety of the Hong Kong banking system and encouraging calm helped, 
as did analyst assessments that the U.S. Congress would move quickly 
to approve a revised plan.  Shortly after markets closed, the HKMA 
announced plans to enact five temporary measures to ensure liquidity 
in the Hong Kong banking system.  End Summary. 
 
¶2.  Senior Hong Kong government officials acted quickly this morning 
to address Hong Kong market concerns about the U.S. Congress' 
rejection of the USD 700 billion rescue plan and the record plunge 
in Dow Jones Index last night.  Financial Secretary John Tsang, 
Secretary for Financial Services and the Treasury K.C. Chan, and 
Hong Kong Monetary Authority Chief Executive Joseph Yam all met the 
press separately before the Hong Kong Stock Exchange opened, calling 
on investors to keep calm. 
 
¶3.  Yam emphasized that Hong Kong's banking system is safe and 
adequately capitalized.  He added that the U.S. markets are likely 
to be volatile over the next several days and overseas markets, 
including Hong Kong, would be impacted.  He advised investors to act 
cautiously and reduce risk.   Financial Secretary Tsang followed 
with a separate press conference where he expressed his 
disappointment about the U.S. Congress' failure to approve a market 
rescue plan and warned that failure to do so could have a severe 
impact on the global financial market.  He echoed Yam's advice to 
investors to reduce risks and predicted volatility ahead for the 
Hang Seng Index.  Financial Secretary Tsang told reporters that he 
is confident that the U.S. Congress will pass measures to address 
the financial crisis. 
 
Hong Kong Securities and Futures Commission issues warning to 
short-sellers 
 
¶4.  The Hong Kong Securities and Futures Commission pulled out its 
stick to scare speculators.  In a press release issued shortly 
before the opening of the stock market, the SFC warned market 
participants not to abuse the use of short selling and threatened to 
implement more aggressive measures toward irregular activities.  The 
Hong Kong regulator said "it would not hesitate to act against 
abusive short selling, in addition to its decision last Friday to 
uphold the up-tick rule and to double the penalties imposed by the 
Hong Kong Securities Clearing Co. Ltd on failed settlement of 
short-selling transactions." 
 
Chief Executive Reassures Investors 
 
¶5.  Just before mid-day, Chief Executive Donald Tsang answered 
questions from the press on the financial situation.  He 
acknowledged that the sharp drop in the Dow Jones Index overnight 
would inevitably affect the Hong Kong stock market. He joined Yam 
and his cabinet Secretaries in emphasizing that Hong Kong's economic 
fundamentals are good and praised Hong Kong's sound regulatory 
systems.  He noted the Hong Kong investors have extensive experience 
in crises, citing the Asian Financial Crisis and SARS, and opined 
that he has confidence in the government's ability to handle the 
current situation.  Tsang reassured the Hong Kong people that the 
government would closely monitor events and take decisive action if 
needed. 
 
¶6.  Investors seized on the Chief Executive's remarks as well as 
analyst expectations that the U.S. Congress would approve a market 
rescue plan with some additional conditions to boost the Hang Seng 
Index.  The market climbed throughout the afternoon, finishing at 
18016.21, up 135.53 points, or 0.76 percent.  Market turnover was 
HK$ 71.81 billion.  HIBOR finished at 2.5 percent for overnight, 
3.75 percent for 1-week, 4:00 percent for 2-week, and 3.65 percent 
for three-month loans. 
 
HKMA Promises Liquidity 
 
¶7.  Just after the market closed in Hong Kong, HKMA Chief Executive 
Yam and Financial Secretary Tsang jointly announced that the Hong 
Kong Monetary Authority will implement five temporary measures to 
increase liquidity for the Hong Kong banking sector.  HKMA will 
accept approved U.S. dollar assets as security for liquidity 
assistance from the HKMA discount window; the duration of liquidity 
assistance will be extendable for up to three months; Exchange Fund 
paper may be used for up to 100 percent of collateral for Discount 
Window borrowing, up from 50 percent; the HKMA will consider U.S. 
dollar swaps with licensed banks as needed; and the HKMA will 
 
HONG KONG 00001823  002 OF 002 
 
 
consider lending cash to licensed banks for up to one month, with 
acceptable collateral.  These measures will run through March of 
¶2009.  When asked why the HKMA was moving now to guarantee 
liquidity, Tsang replied that "when you see a typhoon coming, it is 
best to be prepared." 
Donovan