Hang Seng hangs in as Moody chases the ratings blues

The epicentre of last week's stock market turmoil was the Hong Kong Hang Seng share index, which saw the largest daily fall since the Tiananmen Square massacre of 1989, and started the worldwide collapse.

The fall was blamed on continuing economic and currency problems in the area. The first victims were Japanese banks, which accounted for 42 per cent of all lending to the territory last year - about #54 billion.

The Hang Seng fell a total of 13.7 per cent on 28 October but recovered briefly the following day. But it did not last, and 30 October saw a further fall of 3.7 per cent. This was partly a reaction to the decision by Moody's Investors Service to lower its ratings for Hong Kong banks because of their reliance on property loans.

On 3 November, the Hang Seng index was trading 5.94 per cent higher, and both US and European markets are feeling the benefits. However, there has been no major policy change causing the recovery and underlying problems remain.

Tokyo's Nikkei 225 broadly followed the Hong Kong lead, although the fall was lower. Other Asian markets were equally affected, raising fears of a general downward deflationary spiral across the region.