Hong Kong - that capitalist bastion on the edge of China - is emerging from a crisis of confidence that might have sunk a less resilient financial market. So say government officials and professional investors.
``The message is that Hong Kong is bouncing back,'' David Nendick, the British colony's secretary for monetary affairs, told the Monitor in an interview last week.
``Black Monday'' in 1987 devastated the Hong Kong market, forcing the stock exchange to close for four days. That was the most drastic action taken by any exchange. When it reopened, the market plunged. Meanwhile, the futures market collapsed and had to be bailed out by the government, banks, and brokers. Then came a huge scandal centered on stock exchange chairman Ronald Li and tarring what remained of the exchange's good name. And all the while there's been the really big worry: Exactly what will happen to freewheeling Hong Kong when it rejoins communist China in 1997?
Investors could be excused for feeling a bit leery of investing there. But over the past year, Hong Kong has put its financial house in order. The stock and futures markets are now recapitalized, reorganized, and reregulated by a more tough-minded administration.
``I think it's fair to say that in terms of market safety,'' investors are comfortable with Hong Kong again, observes Patrick Allen, a specialist in Asia with the Vickers da Costa brokerage. ``One or two people I know have shied away, but in principle almost everyone understands the situation.''
New heads of the futures and stock exchanges have been appointed, new independent oversight councils have been established, and a governmental Securities and Futures Commission is being set up.
``We believe that in theory and practice,'' Mr. Nendick says, ``we have exactly the type of council and management to satisfy international investors that things in Hong Kong are in line with elsewhere in the world.''
Far from fleeing, new banks and brokerages have been opening up branches in Hong Kong in the past year. The balance of payments is generally stable: Trade is currently in deficit, although ``invisibles'' such as capital flows are in surplus.
Interestingly, one of the most helpful agents in the bailout of the capitalist colony was the Bank of China, the mainland's central bank. Many take this as a sign of support from Peking for continuation of Hong Kong as a capitalist entrep^ot. Throughout the process, Nendick says, ``as a courtesy we kept the PRC [People's Republic of China] informed.''
Still, a casualty of the past year (besides former exchange head Li) is likely to be the laissez faire image of Hong Kong. All the new regulations are taking care of that. But then this could be considered a natural evolution to what will undoubtedly be more government control on the part of Peking when it takes over the Hong Kong lease in eight years.
But Athena Kwai, Far East investment analyst with PaineWebber's Atlas Fund in New York, says investors who are apprehensive about 1997 can still feel confident about the three- to five-year investment horizon.
``The fundamentals of Hong Kong are very good,'' Ms. Kwai says. ``Consumption is growing at 7 to 8 percent, real estate values are at an all-time high, a number of factories have moved to the mainland and are enjoying lower production costs, and a lot of the conglomerates based in Hong Kong are diversifying.''
PaineWebber has been so confident about these fundamentals that it held its positions in the Hong Kong market through last year's drop and subsequent scandal. Kwai says the exchange cleanup has been very encouraging. She notes that a number of new stock issues have been halted recently because of incomplete information. Before, that wouldn't have happened.
``The more investors see of that kind of action, the more confident they will feel,'' she says.
And confidence is what officials such as Nendick say they want to bolster. The crisis last year, he says, brought on reforms that had been needed for some time.
``Any market that grows as fast as the Hong Kong market is ripe for abuses,'' he notes. ``But it took at least 18 months for the seeds of disaster to be sown, so it will take at least 18 months to put things right.''