WORLD STOCK MARKETS: Eternal optimism in Hong Kong MARKET FOCUS:
Financial Times; Jan 19, 2001
By JOE LEAHY
It does not take much of an excuse for Hong Kong stocks to rally and the past two weeks have been no exception.
Buoyed by investor expectations of further US interest rate cuts, Hong Kong's benchmark Hang Seng Index has risen nearly 7 per cent off its lows of this month.
Shifts in US monetary policy have a direct impact on Hong Kong because the territory's currency is pegged at a fixed exchange rate against the dollar.
The interest rate-sensitive bank and property sectors initially led the rally, followed by telecoms stocks and China-related shares.
The stronger performance in the first few weeks of this year follows an 11 per cent decline in the Hong Kong market in 2000.
That performance, one of the more resilient among hard-pressed Asian markets, was initially driven by an upswing in US interest rates and the technology sector weakness, and later by concern over the global economic outlook.
Hong Kong's economic growth is expected to moderate to 4.2 per cent in 2001 compared to an estimated 10.4 per cent for last year, according to J P Morgan.
However, the broker says the effects of lower income from external trade may be offset by an end to the deflation that has plagued Hong Kong since the Asian financial crisis of 1997.
This would help the ailing property sector and in turn lead to a recovery in domestic demand.
The other positive factor for Hong Kong going forward is China's impending entry into the World Trade Organisation, expected some time this year.
JP Morgan says: "The opening of its (China's) various industries should directly lift Hong Kong's GDP growth via trade-related activity such as legal, financial and transportation services."
Meanwhile, the market will be hoping the interest rate-driven rally in the banking sector will be sustained in the near-term.
"Southbound rate expectations should sustain the sector's price performance and buoy valuations," Salomon Smith Barney says.
The large China-related stocks listed in Hong Kong have also been a centre of attention for investors in recent days. A planned crackdown on the mainland on share price manipulation has prompted a flight to some of the better quality Chinese companies listed in the territory.
The other stock likely to remain in the limelight is Pacific Century Cyberworks, the Hong Kong internet and telecoms company.
Investors have been selling the company amid fears that a major shareholder, Cable & Wireless of the UK, will liquidate half of its 15.3 per cent holding in PCCW when a lock-up period expires on February 21.
PCCW this week hit a low of below HKDollars 3.77 per share, down nearly 80 per cent on a year ago and its lowest point since it took over Cable & Wireless HKT, Hong Kong's dominant telecoms group, last year.
The shares bounced back yesterday, rising nearly 10 per cent on bargain-hunting, but most analysts believe there may be more selling pressure to come.
Joe Leahy
Copyright: The Financial Times Limited
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