Defensive strategy is best approach as stocks adjust
2001-07-09
Terms and Conditions
THE UNITED STATES celebrated its Independence Day on July 4, but the tech -heavy Nasdaq did not seem to be in the festive spirit as it lost nearly 3 per cent the next day.
The Nasdaq's sharp fall was due to another round of corporate profit warnings, which indicated that the third and fourth quarters would remain tough for corporates.
The United States economic slowdown in the second quarter has put such a dampener on the stock markets that they failed to show any sparkle after the sixth interest rate cut, this time by 25 basis points. Investors in Hong Kong and the US also showed no interest and took profits.
We believe the US stock markets are still in the correction mode and investors should continue to be defensive, especially if the Dow dips below 10,000 points.
The Hang Seng Index, too, failed to show any signs of revival after the latest rate cut. Meanwhile, Typhoon Utor shortened last week's trading period. The Hang Seng Index has lost 1.32 per cent in the past two weeks.
Mainland-related companies' indices in Hong Kong, the H shares and red chips, were still adjusting, though they were the only indices to show positive performance.
For the China B-share markets, investors took profit on talks that the speculation bubble could burst at any time, given that the price-earnings levels of listed companies were getting higher.
Singapore-based banking giant DBS Group Holdings announced that the Hong Kong Monetary Authority had approved its purchase of Dao Heng Bank from Guoco Group. It has now submitted a bid of HK$ 40 billion for the Overseas Union Bank.
Investors in many local small- to medium-sized banks now are hoping the mergers and acquisitions trend will continue so that their stocks will have chances of soaring.
We decide to continue holding these banks for a longer term.
Legend Holdings, the mainland's largest computer maker, has experienced selling pressure in the past two weeks despite reporting full-year earnings in line with market expectation.
Investors took profit because they expected the mainland PC market to slow down in the next couple of years.
However, we are still positive on the longer-term growth of Legend and decided to hold on to the stock.
The mainland regulatory authorities earlier informed mobile-phone operator China Mobile that connection fees for service activation payable by mobile subscribers on initial subscription would be cancelled from this month.
China Mobile assured investors that it did not expect the move to have a significant impact on its overall revenue projections.
We believe the elimination of connection fees will probably boost the take-up of mobile and fixed-line services in the mainland. Therefore, we may buy the China Mobile stock when it goes below HK$ 37.
The latest news that the mainland's accession to the World Trade Organisation will be delayed until next year is not expected to dampen the flow of investment into the market.
This is because foreign investors will continue to seize any opportunity to tap the huge market potential the mainland has to offer.
But mainland officials are of the opinion that sustained high growth will come from domestic demand because the anticipated increase in foreign direct investment will account for only about 1 per cent of gross domestic product per annum, which will hardly support growth on its own.
On Friday, at the 112th International Olympic Commission session in Moscow, the host city for the 2008 Olympic Games will be elected.
With Beijing as a candidate, the meeting is being looked upon with great interest by the Chinese.
If Beijing is selected, it will mean the start of an economic boom for both the city and the nation. It could work wonders for the growth of the mainland's economy.
As for our portfolio, we have decided to hold more cash, especially while the US markets are still under adjustment.
Paul Pong is managing director of Pegasus Fund Managers
paulpong@pegasus.com.hk |
