MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JULY 07, 1998 (3)
INTERNATIONAL
Mexico Bourse Advances On Yen, Rate Respite
Mexican stocks posted healthy gains on Tuesday, regaining some year to date losses amid buying as pressure eased on the Japanese yen and on local interest rates, dealers said.
''The exchange rate has firmed, we have less pressure on rates, the situation is looking better. Rather than gaining, shares are rebounding,'' said Jorge Gonzalez, research chief at Valmex brokerage.
The 35-share IPC share index (MXX) ended up 98.73 points, or 2.24 percent, at 4,510.61 points. Tuesday's rise cut the IPC's year-to-date loss to 22.2 percent in dollar terms.
The Japanese yen was trading at 138.7 per dollar, compared to 140 on Monday. This gain was echoed by the Mexican peso, whose benchmark 48-hour contract firmed 4.55 centavos to 8.9325/8.9375 per dollar.
Rates on most Cetes, or T-bills, assigned by the central bank on Tuesday declined, although the bellwether 28-day paper rose by a modest 12 basis points to 20.31 percent.
Sergio Garcia, head analyst at Value, said the market had already discounted a third round of budget cuts due to declining world prices for oil, from which the Mexican government derives one-third of its revenues.
''The market was greatly influenced by press reports that the budget will be cut, but public prices and service costs will not rise,'' he said.
Dealers said the IPC ended below a session high of 4,530.07 points, due to mild profit-taking in step with the Dow Jones, which reversed early gains to end off 0.07 percent.
Benchmark stock Telefonos de Mexico (TELMEXL.MX) rose by 0.65 pesos to 21.90 pesos.
Mexico's biggest financial group, Bancomer (GFBB.MX), ended up 0.07 pesos at 3.90 pesos.
Dealers said the two stocks, which together accounted for 27 percent of total volume, moved on bargain-hunting.
Gonzalez said the market could enhance recent gains in the near term if Asian markets were to remain stable.
''We are looking for a short-term target of 4,600 points, and then we would see more profit-taking,'' he said.
Volume was light at 69.8 million shares and turnover moderate at 1.368 billion pesos. On the broad market, gainers outnumbered decliners by 58 to 25, out of 97 traded.
Tokyo Glides, Others Slide
Nikkei gets tax lift; Singapore drops while HK pares gains to finish lower
Performance in the major Asian markets was once again mixed Tuesday, as Japanese tax debates and Singapore recession worries pulled markets in different directions.
In Tokyo investor optimism was boosted by politicians' comments suggesting Japan would work toward permanent tax cuts after Sunday's election.
Singapore suffered the biggest loss on predictions of a 1999 recession, while Hong Kong pared early gains to finish down half a percent. Sydney enjoyed a moderately positive day thanks to overseas gains.
Tokyo stocks finished higher on optimism about the possibility of permanent tax cuts and a modestly strengthening yen.
The key Nikkei 225 average rose 65.83, or 0.40 percent, to 16,416.28.
The ruling Liberal Democratic Party's chief policy-maker, Taku Yamasaki, was quoted by the Jiji wire service as saying discussions on reforming the tax system were in their final stages.
The comments bolstered optimism first sparked in the morning when Economic Planning Agency Minister Koji Omi told a news conference the government would begin consideration of permanent tax cuts after the July 12 Upper House election.
Both comments came after a series of remarks by top members of the ruling Liberal Democratic Party -- including Prime Minister Ryutaro Hashimoto -- suggesting the administration was flip-flopping on the issue.
"It's a question of when and how much," said Masayuki Nishina, a trader at New Japan Securities. "That's why the market has the support it has."
Other traders agreed tax cuts were likely in the offing.
"We've factored in possible permanent tax cuts to some extent," said a senior trader at a Japanese brokerage. "The government will be forced to introduce the cuts."
Domestic critics and overseas allies alike have called for the tax cuts to stimulate the economy, which contracted in the first quarter.
A stronger yen also helped sentiment, as well as banks. A weak yen hurts banks, forcing them to raise capital to meet international standards as the yen-value of their dollar-denominated loans to Asia rise.
"Almost all of this is domestic investors," said a salesman for a second-tier brokerage. "And it will stay that way until the election is finished."
Turnover was 544 million shares on the first section, up from 530 million on Monday.
Advancers beat decliners 698 to 446, with 140 unchanged. By sector, services and machinery led the rise, while gas and real estate were the biggest losers.
Singapore slides
Singapore shares were battered from their morning highs to a lower close on Tuesday after Prime Minister Goh Chok Tong said Singapore was likely to slide into a recession in 1999.
The Straits Times Industrials Index, which rose to 1,137.55 in the morning, slipped into negative territory. It ended at 1,115.18, down 12.33 points, or 1.09 percent.
"This year we don't expect a recession unless things go terribly wrong in the last quarter," Goh told reporters after the opening of a national education exhibition.
"But I think for next year, the possibility of a recession is fairly high."
Goh's comments triggered falls in the Singapore stock market and sent the Singapore dollar sliding back towards the 1.70 to the U.S. dollar level.
A week ago, Singapore cut its growth forecast for 1998 to between 0.5 and 1.5 percent from 2.5 to 4.5 percent because of the Asian economic crisis.
Concerns over Japan's economic reforms, notably its tax reforms, also continued to nag the market, dealers said.
"Japan is still an issue," said a local broker.
Interest from overseas funds, seen in late Monday trade, was limited on Tuesday, dealers said.
"There is not much of a follow-through. The general feeling is that there is no rush to buy as the region will take some time to recover," a U.S. dealer said.
Total market volume was a moderate 104 million shares, with 86 gainers and 209 losers.
Hang Seng slips in light trade
Hong Kong stocks slipped to a slightly lower close in light selling on Tuesday after a positive performance of the Tokyo market and Japanese yen, and brokers said local investors would remain cautious.
The Hang Seng Index closed at its low for the day, down 39.94 points, or 0.47 percent, to 8,444.18.
"No one is going to be jumping in and out of the market in the short term," Alistair Candlish, managing director of derivatives at Indosuez W.I. Carr Securities.
"Not many shorts have been taken off, because everybody believes that in the balance we are going lower."
Turnover fell to HK$2.95 billion, down from Monday's HK$3.12 billion. This was the market's lowest daily turnover since May 25 when turnover was HK$2.62 billion.
Property shares and red chips led the market lower, while utilities inched ahead.
Overseas markets boost Sydney
The Australian share market ended a fairly uneventful Tuesday session 0.6 percent higher, tracking movements on U.S. and Japanese markets.
The All Ordinaries index rose 17.5 points to 2,769.3 on turnover of A$966.1 million (US$594.2 million).
"The overseas markets were reasonably good last night," said dealer Jim Tredenick of Nevitts.
Sentiment and activity improved over the day from a dull start, but dealers said many investors remained unwilling to commit on a broad base until uncertainty over Japan's plans to boost its ailing economy had been removed.
"People certainly seem to be favoring the secure top leaders, seen as a bit more recession-proof," said dealer Grant Williams of Reynolds & Co.
One example was the two-week old listing of betting agency TAB, which rallied 12 cents to end at A$2.51 after hitting a high of A$2.52 under strong institutional demand.
However, telecom group Telstra fell seven cents to A$4.39 after a recent rally based on its strong domestic earnings base. It hit a new high of A$4.49 on Monday. "It's just a bit of profit-taking after the strong gains," Tredenick said about Telstra.
The banking sector gained 1.6 percent with support from the bond market.
Elsewhere:
Jakarta: Indonesian shares closed sharply higher. A flurry of buying in state controlled cement maker Semen Gresik sent the key index surging 2.8 percent. Traders said investors grabbed up shares of Semen Gresik in hopes of cashing in on future gains. The Jakarta Stock Exchange's Composite Index rose 13.4 points to 483.954.
Seoul: Shares in South Korea also surged on expectations that local interest rates will continue to fall steadily. The yen's stability against the dollar over the past few days has also encouraged investors in Korea, traders said. With a stronger yen, South Korean exporters would gain an edge in prices over their Japanese rivals. The Seoul Stock Exchange's Korea Composite Stock Price Index rose 7.89 points, or 2.5 percent, to 317.50.
Kuala Lumpur: Malaysian share prices closed lower in limp trading, weighed down by bearish sentiment afflicting the region, dealers said. The benchmark Composite Index fell 6.23 points, or 1.3 percent, to 467.55.
Bangkok: Thai shares closed mixed, despite a moderate rise in the main index fueled by buying in the energy and building sectors. The Stock Exchange of Thailand index gained 2.28 points, or 1.0 percent, to 272.28.
Taipei: Share prices closed lower on profit-taking. The market's key Weighted Stock Price Index fell 48.88 points, or 0.61 percent, to 7,845.97.
Wellington: New Zealand share prices closed lower, dragged down by a mixture of profit-taking and consolidation following recent gains. The NZSE-40 Capital Index fell 21.32 points, or 1.0 percent, to 2,067.53.
Manila: Philippine shares closed mixed. The Philippine Stock Exchange Index of 30 selected issues rose 5.93 points, or 0.3 percent, to 1,860.32.
Europe Muddles Higher
Frankfurt, Paris climb to records but trading is 'confused' and hesitant
Shares in Europe scraped marginally higher in light trade Tuesday, but the rally appeared fragile amid continued uncertainty over Japan's efforts to pull itself out of recession.
"There's still a lot of confusion over whether the Japanese will come through with a significant income tax cut program," said Kim Rupert, senior economist at Standard & Poor's MMS.
A disappointing performance on Wall Street, where the Dow Jones industrials index was up a tepid 0.3 percent at the European close, drained the markets of much of their remaining steam.
Frankfurt led the way from the open, with the Xetra DAX index rising on advances by U.S. and Asian bourses overnight and holding most of its gains to close up 33.82 points, or 0.72 percent, at 5,975.88.
The bourse DAX rose 42.61 points, also 0.72 percent, to 5,960.98 after hitting a new high of 5,995.11 earlier.
Deutsche Lufthansa AG led gainers, rising 7.6 percent to 54.60 marks after U.S. investment bank Merrill Lynch raised its share price target for the airline. Merrill declined to say what its target was.
"Yesterday we experienced a bit of instability because we had a negative influence from the U.S., but [a positive close] is providing support today," one trader said.
The CAC-40 benchmark in Paris closed up 21.99 points, or 0.51 percent, at 4,333.09, its second consecutive record finish.
Alcatel helped the French market reach the record, with the telecommunications company's shares jumping 5.6 percent to 1,340 francs following a buy recommendation from Salomon Smith Barney in the United States.
"There's been a lack of initiative all day," said one broker. "Wall Street is not doing much and there's no driving news. People are lacking ideas."
One trader said investors were less concerned about the performance of their portfolios than about France's fate in the World Cup semi-final on Wednesday.
Gains in Britain were more modest ahead of an upcoming decision on UK interest rates, with attention further diverted by news that the London and German bourses will link to lay the foundations for a single European stock market.
"It appears that more people are of the opinion the bank will not raise rates," said a senior sales trader dealer at a British brokerage.
After rising through 6,000 to a four-week high in early trade, the FTSE 100 index slipped back to close up just 13.1 points, or 0.22 percent, at 6,003.4.
"Thursday will be make or break day for us," said one dealer. "The market looks reasonably good at the moment but I doubt we'll be pushed much further."
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