Hong Kong stocks may test 12,000 as PCCW neutral at best
Sunday July 22, 1:19 PM
By Azhar Sukri
HONG KONG (Reuters) - A failed bond offering by Hong Kong's dominant telecom, Pacific Century (Singapore: PCEN.SI - news) Cyberworks, and weakness in U.S. markets are likely to drag the territory's benchmark share index down towards a crucial support level this week.
Analysts said PCCW's <0008> decision to scrap the offer -- originally planned to be as large as US$2.5 billion -- may be seen as good news by institutional investors pleased that the company will not have to pay a large yield premium, which would have seriously dented its 2002 earnings.
But most other investors are likely to see it as a lack of confidence in the embattled telecoms and Internet company, which has seen its share price fall over 58 percent so far this year to be the worst performing Hong Kong blue chip.
"I think the decision to scrap the bond is going to be neutral to slightly negative for the share price," said Alistair Scott, head of regional telecoms research at Merrill Lynch.
"Institutional investors are likely to take it rather phlegmatically, but there will be some tension between the retail and institutional markets," Scott said.
PCCW stock, a component of the 33-stock benchmark Hang Seng Index, touched HK$2.00 on Thursday, its lowest level since it bought Hong Kong's former telecoms monopoly last year. It closed Friday at HK$2.125.
With a weighting of 1.42 percent in the Hang Seng, PCCW may not hurt the market significantly but it could harm sentiment and analysts warn that the HSI is set to test the psychologically important 12,000 mark this week following losses in U.S. markets.
"The index is going to test the 12,000 level, as there are still a lot of short positions that have to be cleared," said Raymond Tsui, head of institutional sales at South China Securities.
The Hang Seng Index ended at 12,301.68 on Friday, down 2.5 percent for the week. It is the worst performing benchmark share index in Asia this year so far, down 18.5 percent, slightly underperforming the U.S. technology-heavy Nasdaq composite index, which it has tracked very closely in recent months.
The Nasdaq ended down 0.84 percent at 2,029.37 on Friday, while the blue chip Dow Jones industrial average lost 0.31 percent to 10,576.65, slapped lower by dismal corporate results and a bleak forecast from software giant Microsoft .
The Hang Seng has tested the 12,000 level just three times over the last two years, and has rebounded sharply each time. But analysts warn that any significant breach of that mark could see it fall to as low as 11,700 points or lower.
The HSI is, however, trading in oversold territory on its 14-day relative strength index chart.
3G DELAY?
Shares of ports-to-telecoms giant Hutchison Whampoa <0013> will be closely watched after it said it is sticking with its mid-2002 launch date for its third-generation mobile phone networks, despite a warning by Vodafone Group on Friday that handset shortages may delay its own 3G launch.
Vodafone's announcement, which came after the close of Hong Kong trading, saw its shares drop 4.6 percent in London.
Shares of Hutchison Whampoa ended up 1.32 percent at HK$76.75 on Friday, but are down 21 percent in 2001 so far.
Investors seeking companies with growth potential are being advised to look to China-linked companies listed in Hong Kong.
"We're still quite bullish on China shares due to the country's macro economic growth potential and believe the H-share index could rebound further," said Norman Ho, a fund manager at asset management company Value Partners which oversees around US$210 million.
The H-share index of mainland incorporated companies jumped 2.76 percent to HK$457.58 on Friday, but was down 7.7 percent on the week, hurt by rumours of a crackdown by China on the illegal use of funds for stock investments.
Among Ho's favourite China-linked stocks is Honda car assembler Denway Motors <0203>, because of its strong earnings growth potential due to rising consumer demand for foreign branded cars on the mainland.
The stock is trading at an estimated end-2001 price earnings ratio of 10.6 times based on Multex Global Estimates, a discount to the red chip index's p/e of 11.8 times.
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