(Problems of Expectations Example: Market Bubbles)
Authors: Cascales, Maria J.; Whitman, John
Source: Asia Case Research Center, School of Business, University of Hong Kong
Number of pages: 16
The Asian miracle turned into a nightmare in 1997. Thailand triggered the region's free-fall when the baht was delinked from the US dollar in July. This sent other Asian currencies tumbling as speculators took advantage of profit opportunities. Hong Kong was not immune to the regional woes. The first attack on the Hong Kong dollar began in earnest in October 1997. As the crisis in Asia worsened, the impact on the HKSAR deepened. Hong Kong's stock market took a pounding as speculators mounted three more attacks in 1998. Faced with this scenario and the prospect of a worsening economy, on 14 August, 1998 the Government changed from being a passive regulator to an active market participant by accumulating large positions in local blue chip stocks. The objective of this case is for students to discuss the appropriateness of this controversial decision and analyze its impact.