16 September 2019
The property market was at the peak of a boom in 1997 until it all came unraveling, along with the stock market. Photo: Bloomberg
The property market was at the peak of a boom in 1997 until it all came unraveling, along with the stock market. Photo: Bloomberg

Haunted by Black Wednesday 20 years on

It is all perhaps déjà vu in the financial markets but something lingers in the minds of investors  after 20 years.

It was a normal day on Oct. 23, 1997. China Mobile (0941.HK) tanked on its first trading day amid a nascent Asian financial crisis. On that day, better known as Black Wednesday, the overnight interbank rate shot up 300 per cent, a level not seen before.

It took me a long time to try to figure out what I was doing that day as a financial reporter in the Hong Kong Economic Journal, a shelter whenever I needed one (after I left the Journal, I returned as a blogger, filing stories every other day for three years).

But I remember that within the first hour of China Mobile trading, the Hang Seng Index, the benchmark of top Hong Kong stocks and the best proxy for Hong Kong’s sentiment, fell about 15 percent to below 10,000 points, marking the beginning of a painful year ahead.

So when I look back with the benefit of hindsight, the stock market was ripe for a crash. The property market was clearly overheating after a three-year rally driven by so-called sea tortoises — overseas returnees during the immigration wave of the 1980s.

In those days, people lined up overnight for new flats or sold their spot in the queue, or flipped their assigned ballot for quick money in East Point City in Tseung Kwan O, where flats were priced at about HK$8,000 per square foot, five years before the MTR came to the area.

The stock market went crazy. It was a time of the infamous red-chip bubble that saw overseas Chinese enterprises incorporated outside China buying up Hong Kong businesses.

From Citic Pacific’s buying into key telecom, utility and aviation assets to China Everbright’s taking minority stakes in many tiny listed companies, investors drove up the China Dream to an unrealistic and unsustainable valuation in the run-up to Hong Kong’s handover to China

It was against this backdrop that China Mobile came to the market. The technology company with an impressive subscriber base sought a listing in Hong Kong and the United States as the first state-owned enterprise to do so under Beijing’s market deregulation. It was followed by major players in the oil and banking sectors in the years to come.

What the market could not predict was the timing of the crash. The fall of Asian currencies put huge pressure on the Hong Kong dollar, and to make matters worse, the strong response to China Mobile’s listing held up a significant amount of capital that could not be repatriated on time.

That set the stage for the sharp hike in overnight interest rates of up to 280 per cent, causing volatility in the currency as well as the stock market. At the end of the day, the almighty China Mobile could not hold its own and lost 9.7 per cent to close lower than its initial price offering of HK$11.68.

The poor performance of China Mobile might not have anything to do with the company’s relatively inauspicious stock code which does not contain a lucky number such as “3” or “8”, but it does point to the nine deaths of the Phoenix from the ashes.

Apparently, China Mobile executives did not ask a special favor from Hong Kong Exchanges and Clearing for a lucky stock code but eventually, it proved to be a formidable player. For much of the past 20 years, it has been the biggest stock in Hong Kong by market capitalisation.

Those were the days, my friend. Twenty years on, history repeats itself. If we missed China Mobile’s IPO, it would not have been as painful as missing a rally by Tencent Holdings. Tencent had a humble start of HK$3.70 (or an adjusted HK$0.74) in 2004 compared with HK$349.20 at this writing.

This article was excerpted from the book 1997, We Were All Reporters published this summer


EJ Insight writer