Hong Kong blue chips fell almost 3 percent and China plays slid 3.3 percent on Wednesday as growing fears about credit conditions sparked a broad sell-off, sending global bank HSBC Holdings to 4-1/2-month lows.
"Investors have no confidence at the moment," said Patrick Shum, strategist at Karl-Thomson Securities. "We'll test 21,000 this week." At that level, the market will be just above its 125-day moving average and will have given back 11 percent from its peak set in July.
More bad news spooked investors as the US subprime lending market hit another string of financial institutions. A US-based investment firm sought to halt client redemption's and a Canadian trust could not find the funds it needed to pay some short-term debt.
The benchmark Hang Seng Index closed down 631.60 points at 21,375.72 a level not seen since June 18. The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, finished down 409.50 points at 11,989.16, a 1-1/2-month low.
Mainboard turnover was HK$77.8 billion (US $10 billion), up sharply from Tuesday's HK$53.3 billion. Some worried the low trading volumes seen this week would be a precursor to the end of a multi-year bull run. "If turnover continues at around the HK$65 billion level, it could indicate we're entering a bear market," said Ricky Tam, investment director at Champlus Asset Management.
All 39 members of the Hang Seng Index finished the day down. The most traded stock of the day was HSBC, which went ex-dividend on Wednesday. Shares in the global bank ended down 1.5 percent at HK$137.9.
Another blue chip heavyweight, China Mobile, suffered a 2.7 percent drop to HK$84.15. Hong Kong Exchanges and Clearing Ltd underperformed with a 4.3 percent decline to HK$120 in heavy trade, despite reporting record second-half earnings that doubled over a year ago.
China Life slid 2.4 percent to HK$30.20. China Overseas Land and Investment, the country's top developer, dived 7.4 percent to HK$14.68. Export plays with substantial exposure to US and European markets took a whacking on worries about consumer spending following the recent credit turmoil.
Trading firm Li & Fung Ltd dropped 4.6 percent to HK$24.95 following a lower profit guidance from key customer Wal-Mart Stores Inc Athletic shoemaker Yue Yuen Industrial Holdings, whose biggest market is the US, slid 3.5 percent to HK$23.65. Apparel retailer Esprit Holdings Ltd, which derives the bulk of its sales from Europe, was hammered nearly 6 percent to HK$95.95.