Hong Kong may use all of its foreign reserves to stabilize its financial markets, said a government official, after the global credit crisis undermined investor confidence and caused stocks to plunge.
“We’ll use all the ammunition if we have to,” Under Secretary for Financial Services Julia Leung (梁鳳儀) said in an interview with Hong Kong Commercial Broadcasting.
“Hong Kong should have faith. Smaller companies are already being hit by the lack of capital in the market,” she said.
Hong Kong holds HK$1.4 trillion (US$180 billion) of foreign currency reserves, the network cited Chief Secretary Henry Tang (唐英年) as saying.
The Hang Seng Index has plummeted 29 percent since last month as the financial crisis brought down Lehman Brothers Holdings Inc and threatens a wave of global bankruptcies.
“The US ended up suffering a domino effect when the government didn’t rescue Lehman Brothers,” Billy Mak (麥萃才), a finance professor at Hong Kong Baptist University, said yesterday by telephone. “Hong Kong needs to stabilize its financial market by any means or see problems in all industries.”
Foreign reserves should be used to support the local currency’s peg to the dollar so as to avoid bank runs, Mak said.
Hong Kong Monetary Authority Chief Executive Joseph Yam (任志剛) directed US$15 billion of government stock purchases to defend the Hong Kong dollar 10 years ago, guiding Hong Kong through the Asian Financial Crisis that started in 1997.
“We will support the idea if there is need because the Legislative Council [Legco] is very concerned that an economic meltdown will affect the public,” pro-democracy Legislator Emily Lau (劉慧卿) said yesterday in a telephone interview.
Bank of East Asia Ltd (BEA, 東亞銀行) suffered a brief run on its deposits last month after messages spread by cellphone questioned its finances. While depositor withdrawals ended after BEA and the government said the bank’s finances are sound, the incident underscored how the financial crisis has undermined confidence in the global banking system.
Shares of BEA have dropped 28 percent since the rumors started on Sept. 22, compared with a 25 percent plunge by the Hang Seng Index.
“It’s a matter of faith,” Mak said. “Hong Kong’s financial system hasn’t had serious problems so far.”
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