Hong Kong blue chips skidded 5.5 percent on Monday in their worst day since September 2001 as a US economic stimulus package failed to calm investor fears about a possible recession in the world's biggest economy.
Catching onto a regional theme, the Hong Kong market reeled in the afternoon, as Japanese equities ended at a two-year closing low while emerging markets, including mainland China and India buckled. Hong Kong-listed China plays tanked 7.1 percent, led by the banking shares.
The president of the sixth biggest bank, China Merchants Bank Co, told Reuters that the US subprime mortgage crisis and Beijing's economic cooling measures would probably hit banking sector earnings. That downbeat outlook followed a report in the South China Morning Post newspaper that Bank of China might post a 2007 loss because of a big write-down on billions of dollars of US subprime-related investments.
"The headlines brought home to China it's not immune from subprime," said Matt McKeith, head of equity dealing at First State Investment. "The real difficulty is what exactly is going to turn these markets around."
Hong Kong held to a tight range in the morning but after Tokyo sank, the market dived as much as 5.7 percent at one point. Hong Kong's China shares were slammed as much as 7.4 percent.
The benchmark Hang Seng Index closed down 1,383.01 points to end at 23,818.86, their lowest close in the year, after earlier touching lows not seen since September 2001. Bank of China sank 6.4 percent to HK$3.37. Shares Industrial & Commercial Bank of China, the country's top lender, plummeted 7.8 percent to HK$4.86.
Air China was sold off in heavy trade, ending at HK$8.38, down 15.2 percent. China Eastern Airlines said it had received a proposal for a "strategic partnership" with Air China that could bring it a cash injection of US $1.9 billion and involve a tie-up between many of the airlines' operations. Hong Kong trade in China Eastern was suspended on Monday. Global lender HSBC Holdings slid 4.1 percent to HK$113.6.
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