Abacus | 1987, 1997, 2007... 2017? Hong Kong’s curse of unlucky seven

Few in finance have memories of the markets that stretch back 30 years. But those whose recall does extend back to the mid-1980s could be forgiven for feeling a little nervous as Hong Kong enters the second half of 2017. The latter months of years that end in a seven are seldom lucky for investors in Hong Kong assets.

Consider 1987. The October 1987 crash hit stock markets around the world, but Hong Kong was hammered especially hard. On Monday, October 19, the city’s benchmark Hang Seng index fell 11 per cent, a slump that prompted stock exchange chairman Ronald Li to suspend trading for the rest of the week “to protect the investor”.

It was suggested at the time that the investor Li was most concerned about was himself. If so, his suspension did not have the desired effect. With trading on the Hong Kong Futures Exchange also halted and dealers facing heavy margin calls on their positions, many defaulted, triggering the collapse of the exchange’s clearing house and forcing a government-backed bail-out. When trading finally resumed a week late, the Hang Seng plunged a further 33 per cent.

China’s stock index breakthrough: a most important non-event

Today the crash is possibly best remembered for how Li publically threatened the Hong Kong correspondent of the Sydney Morning Herald with jail for having the temerity to ask questions at a press conference. But many small investors sustained crippling losses. By early December, the stock market had fallen by more than 50 per cent from its October high. Within months Li had been arrested on corruption charges, for which he later went to jail himself.

Memories of 1997 are even more painful. Scarcely had Hong Kong’s handover hangovers faded, when Thailand devalued the baht, triggering a wave of currency devaluations across Asia. Hong Kong, at the height of a real estate boom, was already looking expensive relative to other business centres in the region. Suddenly, the devaluations made the rest of Asia a great deal cheaper.

Watch: How Hong Kong housing has changed in 20 years

Hong Kong’s promising future is still mostly in the future

Prevented by its fixed exchange rate from devaluing its own currency, Hong Kong was forced to make much of the adjustment through its asset markets. Between August 1997 and August 1998, the Hang Seng stock index cratered by 60 per cent. The adjustment in the city’s property market was slower, but even more vicious. From their 1997 high to their eventual 2003 low, residential prices in Hong Kong slumped by 69 per cent, inflicting grievous losses on legions of home-owners.