Evening Wrap: Flash! HSBC Not the Market Mover! Li Shares Lead Plummet
Jan 30, 2001 - 19:56:43 HKT
QuamResearch
The Li clan was responsible for about half of the HSI's 206.75 decline today which left the index under the 16k level at 15,893.07, while The Bank -- often the determinant in the market's final direction -- contributed just 18 points to the fall. Market turnover was HK$9.79 billion. In fact, the HSI moved like a sidewinder for much of the day, but after January futures expired in the morning session, the sell orders jumped in like a gaggle of mongooses in a snake pit, leaving the second trading day of the new lunar year on negative footing. Influences included the Greenspan effect as the Fed chairman is due to say something about rates following today and tomorrow's meeting of the Federal Open Market Committee. Property news was also somewhat abundant, while technology plays were hit by a combination of general worries and news that the CEO of U.S. giant Cisco said that customers are spending less on its equipment with the result being a more "challenging" quarter than expected.
All sectors fell except utilities as punters began to fear that the upcoming rate cut -- assuming there is one -- will be less aggressive than desired. The result of such concerns is a rotation of funds out of interest rate sensitive counters and into defensive plays. The sub-index rose 1.9% with HK Gas (3) the biggest riser at 30 cents or 2.8% to $11.15. CLP (2) gained 40 cents to $36. Li associate HK Electric (6) gained 2%, 55 cents, to $28.20 and offset the decliners in the empire.
Interest rates and Mr. Greenspan's upcoming announcement frame the critical question on the lips of many an English-impaired fund manager: "25 or 50 BPs?" Simply, will it be a quarter percent or half percent cut in interest rates? Despite the recent surprise cut a few weeks back coming in at half a percent, truly quick and drastic action for the normally staid Fed, the U.S. economy seems to be emanating more warning signals, and the stock market is thus clamoring for more of that old-time religion. If cuts come in at just a quarter percent, the market will likely react negatively, whereas a half point cut will likely be just enough to stave off a pessimistic panic. It comes down to this: the market wants more, but Greenspan is unpredictable enough to potentially give less. His concern is not the stock market but the economy, except where the stock market is a barometer of broader business concerns.
As a result, local banks dropped back slightly, though the effect was minimal, as punters tried to minimize the potential effects of negative news while still maintaining positions. HSBC (5) gave up just 50 cents to close at $120.50, Hang Seng (11) gave back a dollar to $102, BEA (23) fell 35 cents to $21.25, and Dao Heng (223) fell 70 cents to $42.70. HSBC's turnover was strong at $1.4 billion, suggesting that there wasn't much interest in a mass sell-off but neither were there punters willing to pull it higher in the short term.
Properties experienced more of a sell-off as the above-mentioned interest rate question combined with news of government housing initiatives and punter consensus over an over-bought stock segment. The result was a 2.3% decline in the sub-index. The property counter with the largest influence today was SHK (16), which dropped $3, 3.7%, to $78.25. SHK contributed 28 points to the HSI decline. Second was Li Ka-Shing's flagship Cheung Kong (1), which dropped back $2 or 1.95% to $100.50, costing the HSI 18 points. Henderson (12) fell 90 cents, 2.2%, to $40.40. New World (17), the speculative rebel chip, rose 15 cents to $12.15, the only property counter to rise and surely the one with the most interest in the rate equation considering its debt load.
Three tidbits of property news hit the market today, each sending a conflicting signal. For one, it is rumored that Citibank is planning to sell the entire tenth floor of Citibank Tower to take advantage of a recent surge in local office prices and to raise $1.7 billion for business development. Quam news also reported that the managing director of UNI-PAC Property Consultants last month said he expects Grade A commercial property rents to rise 25% to 30% this year. Thus a question for property worshippers is whether Citibank's rumored move is premature or a reflection of the American bank's reservations over the local property market.
A second piece, more unambiguous, is that Cheung Kong plans to increase the prices of some of its unsold apartments by 3% to 8% citing market readiness for a modest rebound. CK also reiterated that it will release 4,000 to 5,000 units for sale this year depending on the market. The company already sold 25 apartments during the Chinese New Year holiday and figures that the expected cut in interest rates will further boost the market. That may suggest that the company is reasonably but not over-optimistic, and that may be a good cue for investors to follow.
The final piece was on the negative side to developers and property punters though more of a positive event for the less well-off in the SAR: the Housing Authority approved a plan to build 40,000 government-owned flats for the public. Of these, 15,000 to 18,000 will be sold under the Home Ownership Scheme in 2001-2002. The HA will also provide low-interest loans to potential homebuyers. However, the HA also plans to lower the monthly household income limit on HOS buyers to around HK$25,000 from the current HK$31,000. This move is probably somewhat conciliatory for the big developers as it will of course exclude a greater number from being eligible for the lower cost HOS units, thus providing a larger pool of bidders to boost the private sector.
Finally, the techs declined again. Li-related plays Hutch (13) and PCCW (8) both dropped and together accounted for 84 points of the decline. Hutch dropped $3.50 or 3.4% to $100 while PCCW fell 30 cents or 6.3% to $4.475 -- do we hear the siren call of three dollars with the debt-laden company destined to dash itself upon the rocks of declining cash flow and poor business prospects? We don't know, but if there is money to be invested, we remain convinced there are better prospects. The non-HSI tom.com (8001) also declined, 25 cents or 9.2% to $2.475 after a 6.8% fall yesterday. That boat's hull may also be close to breaking up. Also hit was China Mobile (941), losing 70 cents to $49.20, and Unicom (762), down 25 cents to $13.30.
Tomorrow is Tony Measor's last day. Tony has made a positive impact on many people and is one who exemplifies integrity. Be sure to read Tony's closing commentary tomorrow, and join us in wishing him the very best.
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