Hong Kong stock market crashes: 1987, 1997 and 2008 compared

How do the three Hong Kong stock market crashes compare?

The 1987 crash was a global event: Hong Kong shares fell 45.8% in US dollar terms in October 1987, the worst decline among world markets (Wikipedia). The 1997 crash was regional: the Hang Seng Index fell 23% between 20 and 23 October 1997. The 2008 crash was global again, and the index closed 2008 down 48.27% for the year.

The three events share one structure. A shock arrived from outside, and the exchange and its currency system had to absorb it. They differ in the weak point that the shock found: a futures clearing house in 1987, a currency peg in 1997, and the global banking system in 2008. Looking for the weak point in the present is the practical use of this comparison.

What happened in the Hong Kong stock market crash of 1987?

After the Hang Seng Index fell heavily, the committees of the Stock Exchange and the Futures Exchange announced that both would close, fearing a collapse. The closure lasted four working days. Wall Street’s Dow Jones index had fallen 508 points, or 22.6%, on Monday 19 October 1987, the largest one-day percentage drop in its history.

The weak point was the futures market. The Guarantee Corporation behind it held only HK$15 million in capital, and about 36,400 contracts worth HK$6.7 billion (US$1 billion) were outstanding after the crash. The British colonial government provided a HK$4 billion package to rescue the guarantee fund. A clearing house with thin capital turned a price fall into a settlement crisis.

How did the 1997 crash hit the Hong Kong stock market?

Hong Kong faced unsuccessful speculative attacks on its dollar peg during the 1997 Asian financial crisis (Federal Reserve History). On 23 October 1997 the Hong Kong Monetary Authority raised overnight interest rates from 8% to 23%, and at one point to 280% (Wikipedia). The Hang Seng Index fell 23% between 20 and 23 October 1997.

The index closed 1997 at 10,722.76, down 20.29% for the year. The peg held, and the stock market took the adjustment. High interest rates raise the cost of borrowing against shares and property, so equity prices carry the price of defending the currency. This is the central trade-off of a linked exchange rate in a crisis.

Why did the Hong Kong government buy shares in August 1998?

In August 1998 hedge funds ran what the HKMA called a double market play: they sold Hong Kong dollars to push interest rates up while holding short positions in stock index futures. On 14 August 1998 the government began using the Exchange Fund in the stock and futures markets. Over 10 trading days it spent HK$118 billion, about 18% of the Exchange Fund’s assets, to buy 33 constituent stocks of the Hang Seng Index.

The Hang Seng Index closed at 7,830 on 28 August 1998, 18% above the level when the intervention began, and turnover exceeded HK$79 billion that day. Overnight HIBOR reached an intraday high of 24%. In September 1998 the HKMA added seven technical measures, including a convertibility undertaking at HK$7.75 to US$1, to make the currency board harder to manipulate.

How far did Hong Kong’s Hang Seng Index fall in the 2008 crisis?

From 30 October 2007 to 9 March 2008 the Hang Seng Index lost 9,426 points, about 30% (Wikipedia). On 8 October 2008 it closed at 15,431.73, over 50% below its peak, and on 27 October 2008 it reached 10,676.29, nearly two thirds below the peak. The index closed 2008 at 14,387.48, down 48.27% for the year.

This fall began with the global banking crisis and reached Hong Kong through its open markets. The route differs from 1997, when the problem began inside Asia. A reader who maps the route of each crash can tell which indicators to watch first.

What role does the linked exchange rate play in a Hong Kong crash?

The Hong Kong dollar has been linked to the US dollar since 17 October 1983 at HK$7.80, under a currency board system. Banks can issue Hong Kong dollars only when they hold equivalent US dollars on deposit. Since May 2005 trading has stayed within a band of 7.75 to 7.85 per US dollar (Wikipedia).

A currency board leaves no room for an independent interest rate in a crisis. When money leaves, rates rise automatically, and the HKMA described this as an automatic adjustment mechanism that speculators tried to exploit in 1998. Understanding the mechanism lets a reader connect interest rate moves with share price moves.

How can you track Hong Kong stock market crash risk today?

Track five readings each quarter as of October 2026: the exchange rate against its band, overnight and one-month interbank rates, futures open interest, the foreign share of trading, and bank funding costs. In 1998 gross open interest in Hang Seng Index futures rose from 70,000 contracts in June to some 92,000 contracts in early August (HKMA).

The EQOS Asia method page explains how a structural score combines such readings. A 30-minute pre-diagnostic through the contact page applies the scoring to your Hong Kong exposure, and the pricing page lists the formats available for a portfolio or a company.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile