Daily Quommentary: Over-Pessimism
Mar 05, 2001 - 10:33:07 HKT
QuamResearch
The world equity markets mourned last week. Both Tokyo, the world's second largest stock, and the Nasdaq, the centre of one of the biggest investment bubbles in stock market history, respectively dropped to their lowest levels never seen in 15 years and more than 2 years. The Hang Seng London reference index last Friday closed at 13,876 down another 90 points from Hong Kong 13,966 close.
The Nikkei-225 Index fell 7.4% to end the week at 12,262, the lowest level since July 1985. The Nasdaq Composite lost 66 points on Friday and closed the week 6.4% lower at 2,118, a level not seen since December 1998. After falling more than 10% last Friday, China Mobile (941) in New York ended at US$22.51 (equivalent to HK$35.12), down another 2% from Hong Kong's close. HSBC's (5) ADRs were last quoted at US$65.77 (equivalent to HK$102.60) compared to the Hong Kong close of HK$103.50.
Last Friday the Hang Seng Index closed at 13,966 down 394 points. The market's turnover was $13.68 billion compared to Thursday's HK$12.39 billion. The selling pressure was mainly from Mobile, which dropped $4.20 or 10.5% to HK$35.90. The counter, which lost HK$286 billion or 30% of its capitalisation in a month, might be able to rebound in the coming few days. We expect Mobile to earn perhaps a bit more than Rmb 25 billion (HK$23.4 billion) for 2001. That leaves Mobile trading at a forward P/E of 28.6 times. It is still a bit expensive considering the expected opening of the mainland telecom market and the political risks investors have to bear.
HSBC fell 50 cents to $103.50 on turnover of $1.14 billion. We expect HSBC to post a net profit next year around US$8.1 billion as CCF starts to contribute full-year income. At $103.50, HSBC's forward P/E is just 15.3 times which, compared to its annual growth rate of about 15%, is a very reasonable price to buy, although one would be too aggressive to say this is a bargain. Friday also saw Wing Lung Bank (96), one of our favorites, jump $2.90 or 8.6% to $36.60 on news that DBS, which already holds 10% of Wing Lung, wants more influence in the bank. Wing Lung chairman, Michael Wu, yesterday denied that the bank had been in sale talks with DBS, although Philip Wu, Wing lung's alternate chief executive, a few days previously told the press that there had been some preliminary talks. The Wus might share different views on this issue, and if this happens, a deal with DBS will be almost impossible.
Considering the bank's great quality assets and management, we feel that Wing Lung Bank is still a "buy" on its own merits. At $36.60, Wing Lung Bank is valued at 8.4 times historical P/E, making it one of HK's cheapest banks. Earnings for the current year could grow another 10% to around HK$1.1 billion and the PE will become affordable at 7.6 times. Some punters might be disappointed with the Wing Lung chairman's statement and there could be some reactionary selling on Monday, but that could be another chance to buy if you still feel that your portfolio is still underrepresented in this counter.
Pessimism was overdone last week. This morning I heard from a Chinese newspaper quoting a stock market commentator that the Hang Seng Index could fall to as low as 8,000! We have said many times that it is very difficult to predict the market's short-term movements. The only thing we know is that every time when the market falls, it is a good opportunity to buy the shares that you like most at more reasonable prices. This recommendation is especially valid when there are too many bears in the market. (end)
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