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Dow Jones Newswires -- December 8, 1997
HK's Hang Seng To Reach 18,800 Pts By End-1998 - Worldsec
AP-Dow Jones News Service
HONG KONG -- Hong Kong's blue-chip Hang Seng Index will shrug off
the disruption caused by Asia's currency turmoil to reach 18,800
points by the end of 1998, and 20,000 points the following year,
said Bethany Chan, director of research for Hong Kong brokerage
Worldsec International Ltd. Monday.
Chan told a gathering of investors, 'We believe that the
difficulties that now beset us will be history in a year's time,
and the excitement we saw in the first half of 1997 about Hong
Kong and China will come back.'
She added, 'Perhaps, by then, 15 times prospective earnings will
again look reasonable, allowing the Hang Seng Index to reach
18,800 by end-1998 and 20,000 to be reached in 1999.'
Chan told investors that the sudden switch in market sentiment
caused by the currency crisis had surprised everyone. 'Basically,
we're being derailed, put off track,' said Chan.
But she said Hong Kong remained competitive thanks to China,
adding that Hong Kong's currency peg to the U.S. dollar can
survive further speculative attacks.
'We believe that the Hong Kong dollar peg will stay (intact), and
that the Hong Kong-dollar interest rates will come back down with
the prime rate falling back to 8.75% by around mid-1998 after
speculation has subsided,' Chan said in a report presented at the
briefing.
Yen borrowing costs now are about 2% against 10% for the Hong
Kong dollar, she said, and Worldsec is recommending investors
short the yen and go long on the Hong Kong dollar.
Worldsec is 25% owned by Bank of Tokyo/Mitsubishi and listed in
London.
n/djn
Worldsec also predicted that Hong Kong's battered residential
property sector will only fall another 20% to bring prices back
to 1996 levels. This is well down on the 50% fall forecast by
some of the more bearish commentators, Chan said.
'There is enormous pent-up demand increasing at the rate of
85,000 homes per annum in the future, compared with the 70,000
actually built in the past,' Chan said.
She said Worldsec is confident people will return to the market
once prices reach affordable levels. Property-related earnings
form a less significant part of the Hang Seng Index than
previously -- rentals now account for 8% of the total, down from
13% two years ago.
Worldsec also expects China's yuan to stand firm amid the
currency turmoil. 'The renminbi (yuan) effectively depreciated in
January 1994 by 33% with the merge of the official rate with the
swap rate, and the recent (Asian) depreciations can be thought of
as catch-up by the other countries,' Worldsec said in its report.
China is in a position to reflate its economy, the report said.
Mainland inflation is low, so the government can further cut
interest rates.
by Sean Kennedy; (852) 2802 7002; skennedy@ap.org
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