The Fluctuating Market Attacks Hong Kong
Hong Kong, March 20 /SHfn/ --
I had expected that after I left the US, I would not get to experience another stormy stock market. I had this belief primarily because the American stock market has fluctuated dramatically over the past two years. Neither of the two main indexes, the Dows Jones Industrial Average and the NASDAQ could escape these fluctuations.
My friends in the derivatives industry told me that the reason for all these movements was active trading of stock options, especially the buying of technology stock options. It seems the substantial volume of option trading was recognised as the origin of these destructive fluctuations.
It seems these fluctuations have finally attacked Hong Kong. Last week, the Hang Seng Index was down to 16,300 points, but increased by more than 700 points on Friday, returning it to the 17,000 level.
When writing this column, the victory by Chen Shui Bian of Taiwan's independence minded Democratic Progressive Party was announced. The Hong Kong stock market, and regional markets are going to swing again.
Without talking about political forces, fluctuations in the Hong Kong stock market have become very exaggerated over the past nine months because of the popularity of technology. I had tried to explain this away with the trading of stock options. However, after observing the market, I found the theory used in the United States was inappropriate for Hong Kong.
Although there are stock options in Hong Kong, they are limited to blue chips. Moreover, there are only a few transactions per day. It may even be only ten percent of overall stock transactions, therefore why hedge?
Lai Sun Hotels Participates In Technology
Two weeks ago, I had predicted Lai Sun Hotels [571] would be boosted by a technology announcement. Well, the announcement was made last week.
After a few days on suspension, Lai Sun Hotels last week announced it was to buy ATV.com and exchange shares with Cheung Wah Development [648], which is to be renamed Softbank Investment Strategic.
It seems Lai Sun Hotels itself is also interested in changing its name to eSun.com Holdings. However, the company didn't heed my suggestions and set up an e-support service, although there is no doubt about its determination.
However, on the day of the announcement, technology stocks on the American and Japanese markets collapsed, including Softbank's Japanese flagship, and as a result, Lai Sun Hotels share price dropped all the way from $3.00 to $1.10 last Friday.
Since I pay close attention to the shares, I observed that when the price dropped below $1.10 last week, there were a few big Chinese and European investment banks emerging as buyers. Most of them are the big players behind the share's recent price breakthrough.
Meet The Black Horse
The IPO market in Hong Kong had a surprise last week. Brand names such as SUNeVISION [8008] and Sunday [866] fared poorer than expected. In contrast, an obscure gas supplier named Wah Sang Gas [8035] from the mainland posted a five-fold gain on its first day of trading.
Walnut tells me that the merchant bank behind Wah Sang's success is a small outfit called Oriental Patron. The company is controlled by mainland Chinese capital, and the chairman of the China Securities and Futures Commission used to be the company's chief executive, and he was very good at sponsoring medium to small sized IPOs.
Before Wah Sang, the company posted a splendid track record by listing ChinaDataCast [8016]. Therefore according to the past performance, Wah Sang could easily go up to $10.
However, back to SUNeVISION, the share price reached a high of $17.45, before closing at $15.10 on Friday. On average, initial subscribers had a return of 50 percent. Surprisingly, the local financial media were all disappointed, as they expected SUNeVISION to be Tom.com the second. Don't they know that only the ambitious get disappointed?
Am I Sexy?
When forced to choose, folks like myself, trained in traditional economic theory would certainly have preferred SUNeVISION to Tom.com. However, generation X investment gurus like Walnut took the opposite opinion. He thinks SUNeVISION is too real to be sexy. It was the first time I had heard someone describing a stock as sexy, so I asked Walnut to elaborate.
It seems he likes to describe shares with room for imagination as sexy. Take Shanghai Industrial [363], Beijing Enterprises [392] or China Everbright [165] in 1997 as examples, they were all extremely sexy. The unstoppable China Telecom [941] in 1999 also shared the same sex appeal. To put it in simple terms, this ability to make someone think romantic thoughts undoubtedly benefited share prices. The asset injections of red chips, the great potential of the telecoms market in China and the unparalleled potential support from Superman's companies to Tom.com all share these same attributes.
In contrast, with a few projects already initiated and a concrete expansion plan for the next year, SUNeVISION is too real to be sexy. After listening to the argument, my secretary thinks that we are wasting our time. She reached the same conclusion by simply looking at Richard Li and the Kwok brothers.
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