The Hang Seng Index fell about 45.5% during Hong Kong’s market crash from August to October 1997.
Hong Kong’s equity market was hit by the wider Asian financial crisis, which began with Thailand’s baht devaluation in July 1997. Investors worried about currency pressure, regional recessions, and the sustainability of Hong Kong’s property and stock valuations. The Hang Seng Index reached a high in August before plunging through late October.
The drop was especially dramatic because Hong Kong maintained a currency board linking the Hong Kong dollar to the U.S. dollar. Defending that link required very high interest rates during periods of speculative pressure, adding stress to borrowers and asset prices. On October 28, the Hang Seng suffered a record one-day point decline at the time.
The crash did not end Hong Kong’s financial importance. The territory’s markets later recovered, although the episode remains a major example of how currency arrangements, interest rates, property prices, and international capital flows can interact.