Hong Kong: Stock plunge is fastest since 1987 crash on China woes

[HONG KONG] Hong Kong's snowballing stock losses are, by one measure, the most extreme since the crash of 1987.

The Hang Seng Index sank 5.1 per cent by 1:10 pm on Monday, dragging its relative-strength index to 15. That's the lowest since the aftermath of the Black Monday rout that prompted Hong Kong's exchange to halt share trading in the city for four days. A reading below 30 is a signal to some traders selling is overdone.

"The momentum is still very much down, so even if RSI indicates oversold conditions it's hard to fight the trend," said Bernard Aw, a Singapore-based strategist at IG Ltd. "If your investment horizon is longer term, 12-24 months, then there is more possibility of a rebound but you have to be prepared to stomach the volatility." A gauge of price swings on the Hang Seng measure surged Monday to the highest since October 2011. The benchmark index of 50 members has tumbled 25 per cent from its April 28 high as a US$4 trillion selloff in mainland Chinese equities and an unexpected devaluation in the yuan spurred concern a slowdown in the world's second-largest economy is deepening.

In 1987, the Hang Seng Index's RSI fell below 15 on Nov 5 after Black Monday spurred a plunge of more than 40 per cent. The stock measure rebounded 35 per cent over the following six months.

BLOOMBERG