VZCZCXRO3133
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #1886 2841019
ZNR UUUUU ZZH
R 101019Z OCT 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 5996
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 001886 
 
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 in Biggest Slide since Asia Financial Crisis 
 
REFS: A) HONG KONG 1875, B) HONG KONG 1866 
 
¶1.  Summary: The Hang Seng fell another 7.7 percent on Friday, 
October 10, capping its biggest weekly slide since the Asian 
Financial Crisis.  HIBOR remained high, despite HKMA efforts to 
assure banks have access to short-term capital.  Hong Kong economic 
leaders predicted worse to come, advising investors to unite to 
prepare for the crisis.  Retailer U-right announced it would close 
its 95 stores in Hong Kong and lay off hundreds of staff if it is 
unable to find a savior to help it pay off HKD 1.2 billion (US$ 155 
million) in loans.  Senior officials warned that other SMEs may 
follow.  End Summary. 
 
Hang Seng Down to 2005 Levels 
 
¶2. The Hong Kong Stock Market continued its slide on Friday, 
following the Nikkei and the Dow down.  The Hang Seng Index opened 
down 1226 points or 7.7 percent, falling below 15,000 for the first 
time since 2005.  The market continued to slide during the day, 
losing as much as 10 percent before bouncing back to finish at 
14796.87, down 7.2 percent from Thursday's close.  Total volume was 
HKD 70 billion.  The Hang Seng Index lost 2885.53 points or 16.3 
percent this week, the biggest weekly percentage loss since the 
Asian Financial Crisis in 1997. 
 
¶3.  Financial and property stocks took the largest hits.  Banking 
giant HSBC fell 8 percent, despite reassuring investors that it held 
sufficient capital and would not approach the British government for 
assistance. China Construction Bank lost another 10 percent as Bank 
of America confirmed it would sell part of its stake in the Mainland 
bank to raise additional cash.  Bank of Communications lost 8.0 
percent, and Bank of China and Bank of China Hong Kong lost 7-8 
percent. 
 
No Reassurance From HK Officials 
 
¶4. Hong Kong senior economic officials offered mixed reactions to 
the deteriorating global financial situation.  Financial Secretary 
John Tsang repeated his remarks from October 9, suggesting Hong Kong 
residents should unite to prepare for a crisis, the full effects of 
which have not yet hit Hong Kong.  HKMA Chief Executive Joseph Yam 
did not show up early in the morning at the main entrance of Two IFC 
to talk to the press, as has been his custom for the past several 
days. Secretary for Financial Services and the Treasury K.C. Chan 
told the press that market confidence is very fragile and worried 
that the credit crunch would disproportionately impact small and 
medium-sized enterprises. 
 
¶5.  As if to prove Chan's point, local garment retailer U-right 
entered liquidation and announced it may have to close its 95 stores 
in Hong Kong and lay off hundreds of employees if it fails to find a 
new investor.  The 19-year-old retailer reportedly cannot repay HKD 
1.2 billion (US$ 155 million) in bank loans as scheduled.  Chinese 
language daily Ming Pao warned in an editorial (October 10) that 
U-right's financial problems herald similar problems for local small 
and medium-sized enterprises.  SME's provide jobs for half of Hong 
Kong's work force. 
 
¶6.  Other than for overnight borrowing, HIBOR quoted by Hang Seng 
Bank at 4 pm today were all higher than last Friday, with one, two 
and three month rates topping 5.0 percent, 4.50 and 4.40 percent 
respectively.  HKMA's two interest rate cuts this week failed to 
stem bank reluctance to lend to their counterparts.  Overnight rates 
were 1.75; one week was 3.5; 2 weeks was 4.0; one month was 5.0; 2 
months was 4.5; 3 months hit 4.4; and 6 months was 4.1 percent. 
Donovan