Evening Wrap: China Plays Climb Again With Mobile Leading Charge; PCCW Drops
Feb 20, 2001 - 18:30:57 HKT
QuamResearch
The market heated up a bit with the top two turnover performers being China-related stocks, pushing the normal market leader down to fourth place. Third place went to Hutchison (13), and its 25 cent decline helped hold the HSI to a modest rise despite strength from China Mobile (941). The index reported turnover of HK$10.38 billion but ended the day up just 36.40 points at 15,527.36.
Main News Items -- More on A and B Shares
Properties posted a modest rise, but yesterday's acceptable response to a property auction had already been factored into the sector, and today's sub-index increase came almost solely on the back of China Resources (291) which is still a sub-index constituent even though its restructuring is going to leave it devoid of property assets, if they stick to their plan. Instead, the counter rose -- 45 cents or 3.6% to $12.90 -- along with other China counters on continued enthusiasm over changes in the PRC's approach towards A and B shares.
The B share market is supposed to be off limits to PRC investors, instead being a forum for foreign investors to punt on the mainland market via a mainland bourse. However, that idea has proved less than enticing, so now mainland investors will be allowed to invest in B shares too, given that they have foreign currency to do so. The move is seen as a prelude to merging B shares with the very popular A share market, and this is seen as likely to eventually lead to inclusion of the Hong Kong-traded H shares. PRC companies listed in HK have both H and A shares, but the H shares trade at a significant discount to their mainland counterparts, thus outrageously large arbitrage opportunities will appear should the mergers happen.
Properties Dull
After the impact of China Resources, the other nine property counters were rather languid and exceptionally split: three were up, three were down, and three were unchanged.
Financials Rise
HSBC (5) may have been number four on the turnover list, but the stock had zero impact on the HSI today as it ended unchanged at $118.50. The other three sub-index constituent banks rose: Hang Seng Bank (11) gained $1.50 to $101.50; BEA (23) rose 45 cents to $19.80; Dao Heng (223) rose 20 cents to $40.60. The non sub-index banks and financials, however, were down or unchanged.
PCCW Declines
Despite the company and Cable & Wireless coming out and making a grand announcement that they are committed to an orderly disposal of C&W's huge 1.63 billion PCCW (8) shares, the counter lost a fair amount of ground today, 22.5 cents or 4.8% to $4.425. The likely reason was that though the words were meant to soften concern over the huge overhang, it only confirmed the general opinion that C&W is anxious to exit. As mentioned in our analysis yesterday, C&W still has one more huge block of shares it has to hold on to for another half year but clearly wants to dump. If this time is not "orderly," one can only imagine what the chaos will be like in August.
China Plays and Mr. Mobile
The red chip and H share indices saw a fair bit of strength again with the former adding 1.5% and the latter gaining 4% above yesterday's 5% jump. China Mobile's (941) market moving jump was less an expression of faith in telecoms (others were mixed) and more of simple association to the all other PRC-related counters. Mobile gained 60 cents to $45.50, while Unicom (762) was unchanged at $11.85. For comparison, SmarTone (315) fell again, 25 cents or 2.1% to $11.70, Hutchison (13) fell 25 cents to $95, while tiny Sunday (866) added a penny to close at 63 cents.
The H shares are far more interesting right now, but punters should not think of this as a traditionally bullish sign so much as a downright stampede. Investors surely do not want to jump on now despite the appearance of easy profits, unless there is a belief in the long term value of the holdings.
That someone like Kelon could gain 42% in one day is somewhat scary, even if it is trading at a large discount to its A share counterpart. The company had inventory issues, and these may or may not have been resolved. Today's gain should thus cause even speculators to be somewhat cautious tomorrow.
In addition, the upcoming share market mergers may not take place, and it may also be a while before the three categories are totally eliminated.
There is a final observation of why this may be a dangerous time to be stepping in to H shares:
There are 51 H shares on the market. Only three of them fell today (and one share was unchanged) with the biggest loser declining just 2%. Of the gainers, nearly half rose at least 10% for the session.
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