The local bourse is expected to shudder today in response to military attacks by the United States against Afghanistan but with retaliatory strikes for the September 11 attacks well heralded, any major selloff should be regarded as good buying opportunities.
In a televised address, the U.S. President George W. Bush announced on Sunday that the U.S., with the assistance of Britain, had begun the first wave of armed strikes on military installations and guerrilla training camps in Afghanistan in a bid to flush out Osama bin Laden, the prime suspect of the September 11 terrorist attacks.
Traditional wisdom tells us that a rush to the safest of assets probably will cause investors to park cash in money markets initially, pushing yields on short-dated debt to new lows and oil prices are likely to rise. These price movements, to our mind, are normally too quick to follow and any attempts to switch assets from equity to money markets and other "safe" assets are deemed to lose.
Last Friday, Hong Kong stocks ended marginally lower as gains in Hutchison Whampoa (13) and Cheung Kong (Holdings) (1) largely offset most of the losses from HSBC (5) and China Mobile (941). The benchmark Hang Seng Index closed at 10,277, down 9 points from the previous day, after testing an intraday high of 10,315. As the Index has accumulated a 15% gain since its 3-year low of 8,894 on September 21, the U.S. attacks on Afghanistan could become an excuse for short-term traders to take profit. Investors who missed the previous buying opportunities might want to set their initial entry point around the 9,600 level.
Hutchison, which has lagged behind other blue chips in the latest rally, ended 3.8% higher on Friday at $61.25 on news that Vodafone, a U.K.-based telecom play in which Hutch holds a 3.5% equity stake capitalised at around 4.4 pounds ($50 billion), will announce third-quarter results better-than expected. Vodafone ended Friday at 156 pence against Hutch's book value of 124 pence. Hutch's stake in Vodafone represents approximately 20% of its shareholders' value of $247 billion.
Cheung Kong, the parent of Hutch, rose 2% to $63.5 despite weakness in other property plays -- SHK Properties (16), which fell 2.4% to $50.5, and Henderson Land (12), which fell 4.6% to $25 after the counter reported disappointing annual results. Investors are concerned a new round of price war might have begun after Cheung Kong launched Caribbean Coast at a stunningly low price of $2,140.5 per square foot.
Henderson China (246), a unit of Henderson Land, dropped 4% to $3 on profit taking after it posted an annual profit of $168 million, up 15% from a year earlier. The counter has been relatively strong against its parent Henderson Land, as the mainland's property market seems to have a brighter future.
Investors had hoped that the Chief Executive Tung Chee-hwa would introduce measures to support the residential market in his October 10 policy address, boosting the Hang Seng Properties Sub-index up by more than 20% from its Sept 21 low.
PCCW (8), Richard Li's tech and telecom venture, shot up 8.1% to $2.075 with virtually no good reason except that the counter has lost more than 90% from its historical high of $27.8. China Mobile (941), our preferred telecom play, fell 2.5% to $25 after rising more than 40% from its 52-week low of $18.15. Unicom (762), which had under-performed Mobile, was up 1.2% at $8.8.
Johnson Electric (179) and Li & Fung (494), which have sizable revenue exposure to the U.S, respectively rose 3.3% and 7.7% to $7.95 and $8.35. Outside the Index, VTech Holdings (303), a consumer electronics maker, rose 7.8% to $2.75, and Tech Venture (61), a computer products distributor, added 12.8% to 53 cents, while Computer & Tech. (46) was up 6.1% at $1.22.
The strong performances of these laggards might indicate that the purchasing power remains strong, but it may also indicate that the market is close to a short-term adjustment.
In the coming week, the New World Group will announce its annual results on Oct 10 for the year ended 30 June, 2001. New World Development (17), which has net debts amounting to $33.7 billion as at the end of 31 December, 2000, representing a net debt-to-equity ratio of 59%. The counter should be a major beneficiary of reducing interest rates, but we fear that the current economic recession will have a severe impact on its revenue, ending up more than offsetting the reduction in interest expenses. Despite the seemingly cheap price in terms of discount to NAV, we are not interested in recommending the counter. (end)
Daily Quommentary
Oct 08, 2001 - 07:32:24 HKT
QuamResearch
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