Rebirth of the Hong Kong Millennium Conglomerate

Chapter 69 Stock Market Crash

After an emergency overnight investigation, the exchange discovered that the three fake stocks had been circulating in the market for three days, and had been bought by three retail investors at different times. The purchase prices were all slightly lower than the market price on the day, which is a common tactic used by counterfeiters to attract buyers.

Even more alarming, the investigation team traced back through the transaction system and found that there were several other "off-exchange transfer" transactions of Hopewell Holdings with similar suspicious points. However, the relevant stocks had already been delivered, and some had even been resold, making them impossible to recover immediately.

Exchange officials realized the seriousness of the situation and that making the news public could trigger market panic.

If this is concealed, the consequences will be unimaginable if more fake stocks flood the market.

After emergency consultations, the exchange decided to suspend trading of Hopewell Holdings' shares and immediately notified the police. At the same time, it secretly contacted major brokerage firms to investigate their recent handling of Hopewell Holdings shares.

However, the truth eventually came out. On the morning of March 10, a brokerage employee involved in the investigation leaked the information to a reporter he knew, and the news that "forged Hopewell shares have appeared on the market" spread like wildfire.

This news was like a boulder thrown into a boiling pot of oil. On Monday, March 12, the explosive news published in the Commercial Daily completely ignited the market: "Three counterfeit Hopewell stock certificates, with a face value of 3 shares, have been discovered in the market, and the police have launched an investigation."

Initially, some people were hoping that this was just an isolated case and would not affect the overall market.

However, when the exchange officially issued an announcement confirming the existence of counterfeit stocks and announced the suspension of trading of Hopewell Holdings for investigation, panic instantly gripped all shareholders.

"Run! It'll be too late if you don't run now!" Someone shouted outside the exchange, and the hesitant crowd instantly erupted into chaos.

As soon as the doorbell rang, investors flooded into the hall like a tidal wave, rushing to the trading windows, waving their stock certificates, and shouting for their shares to be sold.

"I want to sell! Sell them all!" A woman in a floral dress slammed a stack of stock certificates on the counter, her hands trembling with nervousness, tears streaming down her face.

She mortgaged the property left by her husband and invested all of it in Hopewell Holdings' stock, hoping that the investment would double and she could buy her children a bigger house. Now, however, she may lose everything.

The agents behind the window were surrounded by a crowd, with the sounds of keyboards clicking, cries and pleas, and arguments and shouts all mixed together.

On the exchange's electronic display screen, red numbers began to jump wildly, and the stock price plummeted like a kite with a broken string.

Although Hopewell Holdings has suspended trading, panic quickly spread throughout the market. Investors could not distinguish whether the stocks they held were counterfeit and could only choose to sell them at any cost.

By the close of trading, the Hang Seng Index had plummeted 40 points, and this was just the beginning of a nightmare.

Those stock market investors who were dreaming of 2000 points the day before now only had blank and desperate expressions on their faces. Some slumped to the ground, some beat their chests and stamped their feet, and some even fainted on the spot due to emotional distress and had to be carried out of the exchange.

The stock market crash plunged Hong Kong into chaos, with bank runs and shop closures following one after another, causing a public outcry.

Faced with the out-of-control situation, the Hong Kong government held an emergency press conference on March 11 to announce a series of measures to stabilize the market.

The Governor solemnly stated in front of the cameras that he would "take all necessary measures to maintain the stability of the financial market." The policies subsequently announced included: imposing a 15% profits tax on stock transactions to curb short-term speculation; and implementing rent control to prevent landlords from taking advantage of the situation to inflate housing prices and alleviate the financial burden on citizens.

Tightening bank credit and restricting excessive capital inflows into the stock market were measures the Hong Kong government initially intended to curb speculation through tax leverage, stabilize society through livelihood guarantees, and regulate the market through credit controls. However, these hastily implemented measures completely deviated from the actual market situation and ultimately became another straw that broke the camel's back for the stock market.

The imposition of profits tax instantly extinguished the last remaining enthusiasm for investment.

For short-term traders, a 15% tax rate means a significant reduction in profits, or even potential losses. Investors who were originally on the sidelines have chosen to sell and leave the market to avoid being "fleeced" by the tax.

For long-term investors, this move by the Hong Kong government has shaken their confidence in the market. Does the fact that the government is resorting to tax increases to regulate the stock market mean that the stock market is beyond saving?

While rent control was well-intentioned, it has triggered resistance from landlords, with many refusing to renew leases or terminating contracts early, leading to chaos in the rental market and further exacerbating social instability.

The tightening of credit policies dealt a fatal blow to the stock market. Previously, many investors borrowed money from banks to invest in stocks, and the influx of leveraged funds was a major driving force behind the stock market's rise.

With credit tightening and banks starting to collect loan payments, stock investors are forced to continue selling stocks to repay their debts, creating a vicious cycle of "decline - debt collection - selling - further decline".

On March 14, trading volume in Hong Kong stocks decreased significantly, and the Hang Seng Index closed at 1604.25 points, continuing its decline; on March 21, the index fell to 1192 points; on March 26, it plummeted by 188.7 points in a single day, a drop of more than 10%, closing at 1229.28 points.

In just half a month, the Hang Seng Index has fallen by nearly 30% from its high of 1774.96 points, leaving the market in a bleak state.

Inside the stock exchange, the former fervor had long been replaced by despair. Some people were weeping while clutching their stock certificates, some were staring blankly at the empty trading windows, and others were gathering at the entrance to protest, demanding that the Hong Kong government cancel the new policy and compensate them for their losses.

The streets and alleys are no longer filled with the joyful laughter of people talking about getting rich through the stock market; instead, there are endless complaints and sighs.

Those who mortgaged their properties and borrowed money at exorbitant interest rates to speculate in stocks are now facing homelessness and mounting debts.

Some small brokerage firms went bankrupt because they were unable to cope with the selling pressure from their clients and their cash flow dried up.

Banks' non-performing loan ratios have soared, posing a severe test to the financial system.

Although the police have arrested the criminal gang that counterfeited stocks and confirmed that they used professional printing presses and molds to mass-produce fakes, the exposure of the fake stock case has only made the public more convinced that there is an even bigger scam behind it, and the panic has intensified.

In April 1973, the Hang Seng Index in Hong Kong plummeted from its high of 1774.96 points in March. After two months of continuous decline, it had already fallen below the 1200-point mark. The "2000-point dream" that was once hotly discussed on the streets had now become an unattainable bubble.

The stock market downturn is spreading rapidly, eroding Hong Kong's financial system, with the banking sector bearing the brunt!

The loose credit that once fueled the stock market frenzy has now become a black hole that devours them, with banks' non-performing loan ratios skyrocketing.

On Bank Street in Central, the once bustling bank branches are now deserted. Inside the glass doors, the employees have lost their usual composure, their eyes filled with anxiety. They frequently look up at the entrance, fearing an unexpected disturbance.

The cash reserves in the safe behind the counter had already been quietly increased, but everyone knew that it was just a drop in the ocean.

Three months ago, banks were scrambling to keep up with the constant stream of stock loan applications; now, these loans have become bad debts that are difficult to recover.

Countless stock investors lost everything due to the stock market crash and were unable to repay their bank debts; some small brokerage firms and investment institutions suffered broken capital chains and went bankrupt, leaving behind a pile of bad debts.

Some business owners even mortgaged their factory buildings and equipment to speculate in stocks, only to lose everything and watch helplessly as the banks seized their assets.

A credit manager at a foreign bank stood in his office looking at the latest bad debt statistics report, his brow furrowed in worry.

The report shows that the bank's non-performing loan ratio has soared from 1.2% at the beginning of the year to 5.7%, with more than 80% of it related to the stock market.

He picked up the phone, intending to apply for more bad debt reserves from the head office, but heard instructions from the head office through the receiver: "Tighten all non-essential credit, prioritize the recovery of stock market-related loans, and suspend all stock pledge business."

This is the third time this month that the head office has issued a similar instruction, and such scenes are playing out in every bank in Hong Kong.

The sudden tightening of credit further exacerbated the stock market decline, creating a vicious cycle that plunged the entire financial market into a vortex of panic.

On April 12, a piece of news exploded like a thunderbolt in Hong Kong: Wing Hang Bank, located in Yau Ma Tei, officially declared bankruptcy.

This small bank, established for over twenty years, issued a large number of stock loans during the stock market frenzy. After absorbing deposits from citizens, it invested the funds in the stock market in an attempt to profit from the price difference.

As the stock market crashed, Wing Hang Bank's assets shrank dramatically, loans became unrecoverable, depositors demanded cash withdrawals, and ultimately, due to a broken capital chain, it had to file for bankruptcy with the Hong Kong government.

That afternoon, extra editions of the Hong Kong Evening Post were hawked on the streets: "Breaking News! Wing Hang Bank goes bankrupt; deposits may be unrecoverable!"

The news was printed in bold black on the front page of the newspaper, accompanied by a picture of a crowd gathered in front of Wing Hang Bank, each person's face filled with anxiety and anger.

This news instantly shattered the last psychological defenses of Hong Kong citizens.

In an era without deposit insurance, bank failure meant that depositors could lose all their savings.

"Even the long-established Wing Hang Bank has collapsed; will other banks follow suit?"

"Quickly withdraw your money and keep it at home for safety!" Such discussions can be heard everywhere in teahouses, vegetable markets, and office buildings, with panic spreading like a tide.

The next morning, just as dawn was breaking, long queues formed outside the doors of major banks in Hong Kong.

Depositors clutched their passbooks and bank cards, their eyes filled with anxiety. The line stretched from the bank entrance all the way to the street corner, and some even brought small stools and dry food, prepared for a long wait.

"Open the door! Open the door now! I need to withdraw money!" Shouts came from the crowd from time to time, and the originally orderly queue began to stir.

Bank employees opened the doors under immense pressure, only to find that cash reserves were far from sufficient to meet the overwhelming demand for withdrawals.

Some banks have been forced to implement withdrawal limits, stipulating that each person can only withdraw a maximum of HK$5000 per day. This measure has sparked discontent among depositors, with some banging on the bank's glass doors and others protesting loudly, creating chaos at the scene.

At this time, Repulse Bay stands in stark contrast to the hustle and bustle of the city.

In Zhang Zeyang's villa, on the mahogany dining table in the restaurant, a Chinese breakfast was served in exquisite bone china tableware, and the aroma of milk filled the air.

Zhang Zeyang, dressed in a comfortable silk bathrobe, sat at the dining table with a copy of the newly delivered "Industrial and Commercial Daily" in his hand. However, his gaze did not linger on the stock market news on the front page, but was drawn to a news item in the corner—"Wing Hang Bank goes bankrupt and is undergoing liquidation; Hong Kong government intervenes in the investigation."

The first phase of his four-month stock-lending short-selling operation is long over. Now, he is calmly observing the financial storm triggered by the stock market from the perspective of an outsider.

In fact, he had already foreseen the crisis in the banking system as early as the initial stage of the stock market crash.

"When the stock market bubble bursts, banks will inevitably be impacted, and it's no surprise that small banks, which are the least resilient to risk, will be the first to collapse," Zhang Zeyang thought to himself.

"The bankruptcy of Wing Hang Bank is just the beginning. Once a run on the bank takes hold, the consequences will be unimaginable. However, this also presents an opportunity for Chien Koon Bank!"

He put down the newspaper, picked up his milk and took a sip, his mind already racing with countermeasures.

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