Panic waves crash on Hong Kong

In one of Hong Kong’s upmarket neighbourhoods, a high-end apartment was being readied last fortnight for lease to investment bank Lehman Brothers’ Asia-Pacific CEO Jasjit ‘Jesse’ Bhattal at an estimated monthly rent of HK$500,000 (about Rs 25 lakh).
But what a difference a fortnight makes! Even before the ink had dried on the lease agreement, so to speak, the world as Hong Kong’s bankers knew it came crashing down. Lehman Brothers collapsed in a heap on Wall Street, the victim of a cancerous credit crisis that is rapidly spreading through the global financial system and the larger economy. And although Lehman’s Asia-Pacific operations were snapped up by Japanese bank Nomura Securities, and almost all the jobs were saved, the tremors in Hong Kong as a result of the shift in Wall Street tectonics have rattled this ‘money capital’ to the core of its being.

The realisation is dawning among Hong Kong’s large army of investment bankers that the days of bountiful bonuses and the high-flying Good Life may be at an end. Even as recently as last year, a group of Indian-origin bankers in Hong Kong, whose consumer confidence was as high as their net worth, were contemplating going over to the US to pick up some high-end real estate on the cheap following the collapse of the property market there. After last fortnight, however, no one is making any plans for travel or big-spends. Holiday plans have been shelved as part of the belt-tightening measures; in fact, every additional day on the job without bad news is considered an unmixed blessing.

But it isn’t just business-suited bankers that are feeling the pinch of the financial turmoil.
Last week, there was more general panic on the streets of Hong Kong when thousands of jittery depositors queued up outside branches of the Bank of East Asia, the city’s fifth biggest in terms of assets, after rumours spread that the bank was fatally connected to the mountains of toxic assets on Wall Street. Even reassurances from bank officials and Hong Kong monetary authorities failed to calm the frayed nerves of customers, who camped overnight and carted away millions of dollars in cash to stash away beneath their beds. The police then arrested a man who had posted an online message advancing the rumour about the bank, which had triggered the panic response.

This crisis of confidence has spread to other critical sectors that drive Hong Kong as well. The property market, in many ways the bedrock of the city’s economy, has been acutely affected. Luxury home prices, which doubled in the past five years, are estimated to fall by a third in 2009 as the credit crunch slows down the city’s economy.
The asking prices on apartment units up for sale, which were drifting down in recent months, have fallen sharply in the fortnight since the Wall Street meltdown dragged down investment and commercial banks.

Hong Kong’s stock market, which is extremely sensitive to global stock price movements, has virtually collapsed in recent months. And since virtually every one and his dog is invested in the markets, the mood in the underground MTR trains, which are normally abuzz with commuters yammering away on their phones with stock brokers, has turned distinctly downbeat.

The general expectation that Hong Kong might be insulated to an extent from the shock of the financial crisis because of its organic links with fast-growing China have been belied by the realisation that China too is susceptible to an economic downturn in the US. China looks to consumers principally in the US and Europe to keep its factories humming, and the slowdown in those markets has forced the closure of tens of thousands of factories, just across the border from Hong Kong. The karaoke bars, normally teeming with musically challenged but entirely uninhibited Chinese businessmen, have fallen strangely silent; and mah-jong parlours no longer resonate with the rattle of tiles. For now, Hong Kong feels dispirited in the extreme.
venky@dnaindia.net