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Daily Quommentary
Dec 11, 2000 - 09:44:27 HKT
Quamnet News Service
Today the market is likely to be preoccupied with the change of the MSCI, Morgan Stanley Capital International, index and the change of basis from individual weighting on merit to what they call a ¡§free¡¨ float. This means only including shares up to the extent that the holdings are free, meaning are not part of the control, although if Li Ka-shing, for example, wanted to sell his personal holding of 35% in Cheung Kong, 1, then this would bring it back into play, and the weighting would be lifted. This is expected to hit China Mobile, 941, hard, as 75% of this company still remain with the parent company, China Telecom.
But this is a very temporary phenomenon as the profits of the various companies, on which share price valuations will ultimately expand, remain precisely unchanged and prices will therefore revert after an adjustment of sales and purchases by those fund managers who do not have enough intelligence to form their own assessments.
At the same time the more important news over the weekend was that four of the leading the red-chips are to form a pact, and to cooperate with each other in the Hongkong market. The four, China Resources, 291, China Everbright, 165, China Merchant Holdings, 144 and China Travel, 308 are expected to pool rsources, and retain those interests pertinent to their own particular remit. For example all four have various infrastructure project, in many cases well outside their original franchise intentions, more because at that time they had happened to be fashionable and were brought in to increase their earnings. These could perhaps be hived off into one unit. Three of the four happen to have become involved in banking, and it would seem to be much more sensible if these should be concentrated in one, presumably China Everbright. Most are involved in property, and it would make sense that these should be amalgamated. At the moment there is not much purpose in CMH retaining its own listing, except to give its own ministry, Communications, their own separately listing. The paint company could as easily be taken over by China Resources, or else this company could be merged with Cosco, 1199, whose interests are more in line with those of CMH. It is less likely to see quite where China Travel would fit into the picture.
But the suggestion that these companies are to cooperate in the interests of their shareholders is a welcome sign, and that this should help to make this powerful amalgamation stronger in an attempt to issue a challenge to the market is encouraging. There should be signs of encouragement that this.
Johnson Elec, 179, produced, as expected excellent results, but whether that will be sufficient to hold the share price up to its already elevated share price of $13, which values the company at $47 billion for a profit for the full current year projected at between $1.3 billion to $1.4 billion, or 35 times price earnings ratio. One frequently wonders whether being picked as business man of the year is not the kiss of death, certainly it has not been a wonderful tonic to Allan Wong of V-Tech, 303.
This is one of those shares that has been knocked down and counted out, and one is sure that V-Tech will manage to recover before the number 10 has been counted. Over a two to three year haul one feels certain that there will be a recovery of their business, and this could well be the low that long-term investors have been waiting for.
HSI took heart on Friday and rose 177 points to 15,189, after rising from 14,969 to 15,282, in a reasonable turnover of $10.6 billion. 381 risers triumphed over the 246 losing issues, and the future index retained a comfortable premium over cash. H shares were steady, up 3 points to 391, whilst red-chips shed 6 to 1119. Shanghai A shares eased by 2 to 2196 whilst Shenzhen A shares gained 1 point to 685. Chinese turnover was RMB 17.3 billion.
With Hutchison,13 and Cheung Kong, 1, now level pegging at about $98, these two shares are likely to use the excuse of MSCI to widen the gap, in favour of Cheung Kong. But HSBC, 5, already anticipating this year¡¦s improved results will enjoy an improved turnover.
PCCW, 8, at last enjoyed a day in the sun, and rose 45 cents, one of the better rises on the day, to $5.85. Some attributed this to the squeezing of the recent warrants on this stock, issued with the rights issue, as most of the other warrants are drowned or drowning. [End]
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