RPT-WEEK AHEAD-HK stocks seen depressed after Taiwan
By Stephen Weeks HONG KONG, March 19 (Reuters) - Hong Kong stocks would suffer Monday after the pro-independence DPP party won weekend presidential elections in Taiwan but would likely bounce back quickly due to strong fundamentals.
"It will press down the stock market, but I don't expect the impact to be very big, perhaps a few hundred points to the 16,500 level," said Ricky Tam of Delta Asia Securities.
Hong Kong's blue chip Hang Seng Index <.HSI> was shaken for much of last week by China's sabre-rattling to head off a DPP win, but on Friday the market took its cue from a record setting rally by the Dow Jones Industrial average <.DJI>.
The Hang Seng surged 723.99 points, 4.43 percent, to close at 17,082.99, recouping nearly half of its 1,472-point drop in the first four trading days. It was down 4.2 percent on the week. Attention this week will be focused on any renewed tension with Beijing created by the victory of Taiwan President-elect Chen Shui-bian and his pro-independence Democratic Progressive Party (DPP). Several analysts said the main question was whether Beijing backed away from earlier threats to retaliate against a pro-independence leader in Taiwan.
"Overall sentiment will be determined by China and Taiwan," said Howard Gorges, director of South China Brokerage.
"It will be a bit of follow the leader.
There will be caution at the start but if there's not much selling, we could see a turnaround.
CHANGES TO MSCI INDEX COULD LEND SUPPORT Analysts saw some support but little real upside potential in changes to Morgan Stanley Capital International's (MSCI) China Free Index, which many fund managers use to allocate assets and measure performance.
MSCI added 15 China-linked Red Chips to the index in a wider re-evaluation than the market expected.
Twenty-two companies were removed.
"The main changes are that the so-called Red Chips will be included in our definition of the China Free Universe," said John Fildes, vice president of Morgan Stanley Asia Ltd. "The market capitalisation of the MSCI China Free Index will go from US$3.9 billion to US$81 billion." The Red Chips are companies which are incorporated and listed in Hong Kong but have most of their business in China and whose major shareholders are organisations owned by the state. Among the new companies in the index were China Telecom (Hong Kong) <0941.HK>, Legend Holdings Ltd <0992.HK>, China Everbright Ltd <0165.HK>, Citic Pacific Ltd <0267.HK>, Cosco Pacific Ltd <1199.HK> and Founder (Hong Kong) Ltd <0418.HK>.
China Telecom will be included with a market capitalisation factor of 0.4 and Legend, with with a factor of 0.8, while all other constitutents would be included at 100 percent of their market capitalisation.
But Red Chips formed too small a part of the Hang Seng Index to be the sole drivers of a major movement, Gorges said. INTEREST RATES ALSO SPOOKING MARKET A U.S. Federal Open Market Committee on Tuesday, where interest rates could be raised, was also causing jitters.
Such a move would likely push up Hong Kong's interest rates at the weekly meeting of the Hong Kong Association of Banks on Friday.
"Hong Kong stocks are going to be volatile next week because of the Taiwan election, the U.S. Fed meeting on Tuesday, Cheung Kong and Hutchison earnings and the MSCI announcement," Stephen Li, Hong Kong strategist for Jardine Fleming Securities, said. Cheung Kong (Holdings) Ltd <0001.HK> and affiliate Hutchison Whampoa Ltd <0013.HK>, the bluest of Hong Kong blue chips, are due to report year-end results on Thursday.
Andrew Look, regional director for Prudential Portfolio Managers (Asia), said any fall in technology stocks could bring some of the traditional blue chips back into favour.
HONGKONG-DIARY-MARCH 21 - APRIL 18 - - - - TUESDAY, MARCH 21 - i-Cable Communications Ltd <1097.HK> final results.
- - - - WEDNESDAY, March 22 - CS First Boston Asian Investment Conference (til March 24). Keynote speakers: M.R. Chatu Mongol Sonakul, governor of the Bank of Thailand; Prof. Rudi Dornbusch, Ford Professor of Economics at the MIT; Alan Budd, former member of the interest-rate setting Bank of England Monetary Policy Committee.
- Briefing with John Bolton, senior vice president of American Enterprise Institute, on "The Taiwan election and its impact on U.S.-Taipei-Beijing relations." - Television Broadcasts Ltd final results.
- - - - THURSDAY, MARCH 23 - February consumer price index. - Cheung Kong (Holdings) Ltd final results.
- Henderson China Holdings Ltd interim results.
- Henderson Investment Ltd interim results.
- Henderson Land Development Co Ltd interim results.
- Hutchison Whampoa Ltd final results.
* Wharf (Holdings) Ltd final results.
- Sino Land Co Ltd <0083.HK> interim results.
- - - - FRIDAY, MARCH 24 ++ ECON/MEDIA ++ - Final day of the CS First Boston Asian Investment Conference.
Keynote speakers: Richard Li, chairman of Pacific Century Group; Cacuk Sudarijanto, chairman of Indonesian Bank Restructuring Agency; Alwi Shihab, Indonesian Minister of Foreign Affairs; Pisit Leeahtam, Thailand's Deputy Finance Minister.
- Rugby Union Hong Kong Sevens Tournament (til March 26). - Restaurant receipts Q4 1999. - Dao Heng Bank Group Ltd interim results.
- Shangri-la Asia Ltd <0069.HK> final results.
- - - - SATURDAY, MARCH 25 - Rugby Union HK Sevens (til March 26). - - - - MONDAY, MARCH 27 - February external trade figures.
- - - - FRIDAY, MARCH 31 - HKSAR February financial results.
- Monetary Statistics for February.
- Quarterly index of industrial production.
TUESDAY, APRIL 4 * public holiday, Ching Ming Festival.
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