South China Morning Post. This is the week ahead, from the Hong Kong view point.......................................
MondayÿÿOctober 27ÿÿ1997
Hong Kong to lead way for nervous global markets
SHEEL KOHLI in London and JAKE LLOYD-SMITH
Trade in global equity markets this week may again be influenced by developments in Hong Kong, which is on course for more volatile trade, brokers said.
Vickers Ballas Securities research manager Andrew Fernow said: "[Hong Kong] will bounce around 10,000 [points], but you can't rule out another big dip. It's a volatile market right now and could easily move 2,000 points."
Brokers said another attack on the currency peg could trigger further price falls, which last week sent shockwaves around world markets.
Last week, the local stock market suffered huge losses, ending 18.1 per cent lower at 11,144.34 points.
At one stage on Thursday, when the index recorded its biggest points loss to date, the Hang Seng Index fell below 10,000 points.
Daiwa International Capital Management chief investment officer Ambrose Chang said: "The [Hong Kong] market is going into a roller-coaster stage . . . As long as the interest rate element is there, the market is going to be capped, unlikely to get much above 12,000."
The expiry of the October futures contract on Thursday could further complicate trading patterns.
New York stocks fell for a third day on Friday, in part on Hong Kong concerns. The Dow Jones Industrial Average lost 136 points, or 1.69 per cent, to end at 7,715.41.
"The US market is very over-bought, investor sentiment has really been too bullish," Merrill Lynch economist Bijal Shah said.
"It does look as if earnings disappointment has come through, and the high valuations cannot be justified.
"Clearly this will have a detrimental impact on all world equity markets."
Long-term earnings expectations data indicates a 15.5 per cent increase for US companies, including a 17.5 per cent boost for the technology-rich Nasdaq board.
Dresdner Kleinwort Benson strategist Albert Edwards said: "The market is very vulnerable, the earnings expectations are overblown."
European markets are expected to follow the lead given by the Dow, but strategists say the fundamentals for longer-term strength in Europe are still in place.
On Friday, European markets closed mixed, with London's FTSE-100 Index down just 0.43 per cent to 4,970.2 points, Germany's DAX-30 up 0.13 per cent to 3,981.44, and France's CAC-40 down 0.27 per cent to 2,849.03 points.
"Europe has the least justification for a sell-off," Mr Shah said. "There is low inflation, no major tightening of monetary policy and strong profits growth, plus US dollar strength."
Analysts warned there was still a risk of contagion in the short term, with the fallout from Asian markets and nervousness in the US.
In London, stocks such as HSBC Holdings, Standard Chartered Bank and Cable & Wireless, which have heavy exposure to the region, are likely to suffer the most.
"In Europe, the main risk is through direct earnings linkage to the region," Mr Edwards said.
Analysts are still calculating the precise nature of the linkage between a slowdown in Asian growth and world equity markets.
Lehman Brothers global economist John Llewellyn said: "Weakening Asian markets could trigger a weakening in world demand if investors . . . in OECD countries were to lose confidence and start to save more and spend less."
He added, however, that such a scenario was unlikely.
Strategists said investors would focus particularly on how determined Hong Kong authorities were in maintaining the US dollar peg.
A depreciation of the Hong Kong dollar, followed by the abandonment of the peg, would risk plunging the region into a new round of currency depreciation, directly affecting economies such as the US, with a high level of exports. |
