Beware of fallout from Beijing's Olympics spree
2001-07-23
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MAINLAND MARKETS took a beating in the latter half of last week, with the A -share market being the only one to make minor gains.
The A-share market survived the onslaught because of the excess liquidity in the market.
On Thursday, the B-share indices in Shanghai and Shenzhen fell 6.02 per cent and 7 per cent, respectively, on rumours that the government was cracking down on the illegal use of funds for B-share trade.
The rumours follow a sweeping crackdown on foreign-exchange outflow said to have been provoked by Chinese illegally exchanging foreign currency to speculate in Hong Kong stocks, in particular the H shares of mainland firms listed here.
China does not allow its citizens to buy overseas shares.
The B-share market, however, rebounded on the last trading day of the week, with the Shanghai index ending Friday's trading up 2 per cent at 199.065 points after hitting an intra-day low of 190.957 in the morning amid lingering rumours of the possible crackdown. The Shenzhen B-share index closed the week up 1.31 per cent at 306.33 points after falling more than 4 per cent in early trade.
The H-share and red-chip indices followed their mainland counterparts and lost 2.51 per cent and 0.78 per cent, respectively, on Thursday.
On July 13, the International Olympic Committee chose Beijing to host the 2008 Olympics.
But the effect of this announcement did not percolate down to the "Olympics stocks", which ended the week mixed.
The reason is the market had factored in most of the positive news.
The mainland's State Statistics Bureau has said that the Olympic Games will boost the country's annual gross domestic product growth by 0.3 per cent to 0.4 per cent in the next seven years.
We believe hosting the Games will bring gains in the infrastructure plays, such as companies engaged in roads, bridges, stadiums and construction.
Investors interested in taking risks may consider adding Beijing North Star to their portfolios, because the company's stock price had risen 50 per cent in the past few months and the latest correction has dragged it down by 30 per cent.
This state-owned enterprise was established in 1986 to construct the Asian Games village.
Sydney's experience has indicated that tourism started to grow a few years before the Games. So, we believe the 2008 Olympics can benefit travel agencies, hotels and transport companies such as airlines.
As we mentioned last week, we will bring TravelSky Technology back to our portfolio when it falls below HK$ 6.50.
Television and media will be another sector to benefit, as worldwide broadcasting rights for the event are a key revenue generator.
We may consider buying Phoenix TV when the market is more stable.
We also believe power, oil, telecommunications and brewery stocks will benefit. We have bought more China Mobile stocks at the price of HK$ 35.30.
Readers should note that the Olympics are still far off, and they should not be too optimistic about its impact on the stock market.
Although an increase in government expenditure can boost GDP, spending on the Olympics will tighten its budget in other sectors.
To avoid cutting budget estimates, the government may borrow from the financial markets or raise taxes.
The latter policy, however, may have adverse effects on private-sector investment and consumption.
Although we do not overestimate the benefits of hosting the Olympics, we remain overweight in the mainland because of the World Trade Organisation issue and strong domestic growth prospects.
Our survey among fund companies in the SAR showed that Hong Kong, China and the United States emerged as the favourite investment destinations.
Other regions such as Latin America and Eastern Europe lagged behind because of political instability.
The survey also revealed that sectors such as biotechnology and health-care stocks were the favourites among fund managers, whereas telecoms, software and technology stocks were the least preferred.
Paul Pong is managing director of Pegasus Fund Managers
paulpong@pegasus.com.hk
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