The Hang Seng Index suffered its worst fall in 14 months yesterday amid fears over Europe's debt crisis and a ratings report on accounting risks at mainland companies.
Hong Kong's Hang Seng Index recorded the biggest drop in Asia, losing 689.07 points, or 3.06 per cent to close at 21,663.16 points, helped downwards by the failure of the 17 euro zone finance ministers meeting in Brussels to rule out a sovereign debt default by Greece.
The disappointment also sent shares down in Europe, where major markets closed around 1 per cent down, and in the United States. Investors were further worried that Italy, the third-biggest euro zone economy, Spain and Portugal would be next on the disabled list. Euro zone leaders are eyeing a crisis summit within days to fight debt contagion.
Italian Prime Minister Silvio Berlusconi urged his country's parliament to adopt sweeping budget cuts quickly. 'We are on the front lines in this battle,' Berlusconi said, calling for austerity measures to be approved in 'a very short time frame ... We have to be united and cohesive in the common interest'.
Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed investor jitters, saying Spain's ability to repay debts 'has every guarantee'.
All but three stocks fell in the Hang Seng Index, with heavyweight HSBC holdings losing 3 per cent. The biggest loser was West China Cement, which sank 14.13 per cent to close at HK$2.43. It was a 10-month low for the stock since the Shanxi-based cement producer swapped its listing from London's Alternative Investment Market to the Hong Kong stock exchange in August last year.
Adding to the gloom, Moody's released a report on Monday assigning 'red flags' to 61 Chinese companies on the basis of their possible weaknesses in corporate governance, opaque business models, fast-growing-business strategies, poor quality of earnings or cash flow and concerns over auditors and the quality of financial statements.