Hong Kong Turmoil Hits U.S. Stocks; Yields Rise

The global stock slide triggered by Thursday’s virtual market crash in Hong Kong hurt U.S. stocks across the board, with broader stock measures declining almost as much as the Dow Jones industrial average. But U.S. bonds gained in price as part of a “flight to quality.” The dollar was mixed.

Broader U.S. stock measures sank by about 2%, slightly less than the 2.3% loss suffered by the Dow, which still boasts a 21.7% gain for the year.

The Dow, an index of 30 multinational companies whose profits have already been pinched by the mounting economic turmoil in Southeast Asia, fell 186.88 points to 7,847.77 after twice falling to a deficit of nearly 230 points.

The selling was fairly indiscriminate. Among the Dow 30, DuPont was the only issue to post a gain, rising 44 cents to $60.06. And the only Dow components to fall more than 3 points were IBM, down $4.75 to $100.38; Alcoa, down $3.50 to $77.25, and United Technologies, down $3.19 to $76.63.

Declining issues outnumbered advancers by a 4-1 margin on the New York Stock Exchange and by more than a 3-1 margin on the Nasdaq Stock Market.

NYSE volume totaled 669.32 million shares, the third-largest tally ever, and Nasdaq volume totaled 818.87 million shares, the seventh-busiest day ever.

The Standard & Poor’s 500-stock list fell 17.80 points to 950.69, the NYSE composite index fell 9.31 points to 499.49, and the Nasdaq composite index fell 36.83 points to 1,671.25.

In Hong Kong, the benchmark Hang Seng index fell 10.4%. HSBC Holdings, parent of Hongkong Bank, tumbled 13.5%, accounting for a third of the index drop.

China-backed shares, or red chips, plummeted. Their gains, which fueled a record run in the first eight months, have evaporated. The index of their shares has dropped 3% for the year after more than doubling through August.

The rout marred the long-awaited debut of China Telecom (Hong Kong) Ltd., an arm of China’s Ministry of Posts and Telecommunications. Though it launched the biggest initial share sale ever in Asia outside Japan, the company slumped almost 10% in its first day of trading on the Hong Kong Stock Exchange.

Some experts said further declines are in store.

Mark Mobius, who manages $15 billion in emerging market stock funds, said the Hong Kong stock market will fall another 20% before its slump ends.

“We probably have another 20%, 25% to go, if you look at what the history is in these markets,” said Mobius, managing director of Templeton Asset Management Ltd.

“Starting about three months ago, we were selling Hong Kong stocks because we felt they had overshot the mark,” Mobius said in Carlsbad, Calif., while attending an emerging-markets conference sponsored by Templeton. “We found better bargains elsewhere.”

Mobius started selling Hong Kong shares after the Hang Seng gained almost 9% in July.

Thursday, he said Templeton won’t buy Hong Kong stocks again until they decline even further. “If there was another 20% decline, then we would probably be in there buying again,” he said.

The Hong Kong avalanche prompted investors to buy safe-haven securities such as U.S. Treasury securities. Bond prices posted their sharpest gains in more than a month as U.S. Treasuries became a safety net.

The benchmark 30-year Treasury bond yield fell to 6.30% from 6.42% on Wednesday.

The U.S. dollar rose sharply against the Japanese yen but fell against the German mark as traders fled from most Asian currencies after the Hong Kong stock slide.

In late New York trading, the dollar was quoted at 121.87 yen, up from 120.90 on Wednesday. It was quoted at 1.7682 marks, down from 1.7868.