TNAG-1944-FCO40-2770-Stock-market-and-exchange-rate-in-Hong-Kong-1990 — Page 77

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FM HONG KONG

ΤΟ IMMEDIATE FCO

TELNO 1708

OF 25100OZ MAY 89

INFO IMMEDIATE WASHINGTON, PEKING, SEOUL

HKC100/1

31

127131

MDHIAN 6397

(CULL)

SEOUL PLEASE PASS LORD GLENARTHUR

STATE OF HONG KONG MARKET: 25 MAY 1989

SUMMARY

HANG SENG INDEX ENDED 256 POINTS DOWN ON HIGH TURNOVER THE MONEY MARKET REMAINED STABLE WITH THE HONG KONG DOLLAR EASING TO 7.782 TO THE US DOLLAR.

DETAILS

2. THE HANG SENG INDEX FELL BY 225 POINTS IN THE FIRST HALF HOUR OF TRADE AND CONTINUED FALLING FOR THE REST OF THE MORNING. AT THE CLOSE OF THE MORNING SESSION, THE INDEX WAS 2668, A DROP OF 340 POINTS. IN THE AFTERNOON, THE INDEX STAGED A MAJOR TECHNICAL REBOUND AND CLOSED AT 2752, RECOVERING SOME 84 POINTS FROM THE MORNING CLOSE. FOR THE DAY, THE INDEX RECORDED A TOTAL FALL OF 256 POINTS AT A TURNOVER OF HK DOLLARS 3.44 BILLION.

3. THE INDEX PLUNGED IN EARLY TRADE ON UNCONFIRMED REPORTS THAT LI PENG WAS WINNING THE LEADERSHIP STRUGGLE. IT STABILIZED LATER ON IN THE MORNING BUT RESUMED FALLING ON RUMOURS THAT THE ARMY WOULD SOON ENTER BEIJING. THE AFTERNOON RECOVERY WAS LARGELY DUE TO SHORT COV- ERING. THERE WAS SAID TO HAVE BEEN WIDESPREAD SELLING BY LOCAL INVESTORS AND OVERSEAS INSTITUTIONS. THE FUTURE TREND IS IMPOSSIBLE TO PREDICT AT THIS POINT.

4. THE HANG SENG INDEX FUTURES CLOSED AT A DISCOUNT TO THE SPOT MARKET. THIS REFLECTED THE LACK OF CONFIDENCE AND ALSO INVESTORS' REACTION TO THE INCREASE IN THE MARGIN REQUIREMENT TO HK DOLLARS 22,500 TO TAKE EFFECT TOMMORROW MORNING. IT IS ALSO INTENDED THAT THE MARGIN REQUIREMENT WILL BE INCREASED AGAIN AT THE OPENING OF BUSINESS ON MONDAY TO HK DOLLARS 26,250. THERE HAVE BEEN TWO MARGIN CALLS TODAY AND THEY WERE FULLY MET. THE FUTURES INDEX ITSELF WAS

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