Fears about Asia's economies propel yet another day of strife

HONG Kong stocks collapsed for a second straight day yesterday in a global equities sell-off, as investors feared Asia's emerging markets economies may not hold up as well as expected if the US economy goes into a recession.

The two-day sell-off whacked HK$2.5 trillion (US$321 billion) from Hong Kong's stock market capitalization, or the equivalent of half of Taiwan's stock market value.

The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, fell 12 percent to mark their biggest single-day loss in 10 years.

Blue chips dropped 8.7 percent to break below their 22,000-point key level for the first time since August when the subprime debacle roiled financial markets.

"Global markets are now pricing in a US recession," said Adrian Mowat, a JPMorgan Asian equities strategist.

Margin calls and anticipation of fund redemptions set off bouts of panic selling. Shortly after the opening, the benchmark Hang Seng Index broke its 250-day moving average, a key support level, before spiralling below the next key mark of 22,000 points.

"Markets have broken all technical levels," said Mun Hon Tham, a strategist at ABN AMRO.

"There's going to be a lot of earnings downgrades. You can say some stocks now look decent on valuation but once you adjust the earnings outlook, they're not cheap."

The benchmark Hang Seng Index finished down 2,061.23 points to end at 21,757.63.

The index of H shares ended down 12 percent, or 1,619.54 points, at 11,911.91.

Blue chips are down nearly 22 percent since the year began, and H shares are down 26 percent.

Hong Kong's Financial Secretary John Tsang called for caution.

"I will continue to coordinate with market traders and regulators to monitor the market situation and see how it develops. I would also urge investors to be cautious," he said.