HK & China - Market Direction 01 (May08 - Oct08)

[winston]

HK shares fall 2.5 pct; skeptical of China stimulus

HONG KONG, Aug 21 (Reuters) - Hong Kong shares fell 2.5 percent on Thursday, wiping out the previous session's gains as investors grew more skeptical about speculation Beijing will launch a package to stimulate the economy and badly battered mainland Chinese markets.

Investors also stayed on the sidelines on expectations that the market may be closed on Friday after the Hong Kong observatory warned of an approaching typhoon.

The Hang Seng Index .HSI unoffcially closed 517.87 points lower at 20,413.39.

The China Enterprises Index .HSCE of top locally-listed mainland firms fell 2.4

[winston]

HK is close today.

======================

From UOB-Kay Hian:-

Where angels fear to tread

Trying to second-guess when and what fiscal stimulus Beijing will unveil is a frustrating exercise. While there was a body of opinion in China that the government would announce enough economic measures for an Olympics rally, Beijing did nothing. We were among those looking for an Olympics
rally but, as it turned out, we were wrong.

Frustrated investors went on to dump China stocks in Hong Kong and the mainland indiscriminately and few dared to buy. Thus, the average daily turnover in the two markets (Hong Kong and Shanghai) in August is the lowest seen so far this year.

Now, as the Beijing Olympics draws to a close this Sunday, major US houses are again fuelling the rumour that a post-Beijing Olympics stimulus package is in the works. One of them even estimated that the package would be worth Rmb200b-400b, and so on Wednesday, the A-share and Hong Kong markets rallied strongly between 4% to 7%.

Yesterday, without official word of any stimulus package, Hong Kong gave back more than Wednesday’s gains while Shanghai was down 3.6%. Trading volumes of the two markets remained
low, hardly the stuff for a sustained rally. Now, unlike other markets, Hong Kong is both influenced by Wall Street as well as China’s A-share markets.

Can Hong Kong sustain a rally should a Beijing stimulus package comes through? It is becoming increasingly hard to tell, as theUS economy is not out of the woods yet while predictions are that the worst is yet to come from the sub-prime contagion.

A former IMF chief economist – Kenneth Rogoff - added to investors’ long list of worries when he remarked in Singapore a few days ago that ``we’re going to see a whopper, we’re going to see a big one’’ collapsing, not to mention several other mid-sized banks. In other words, fund outflows from Hong Kong and other markets will continue.

Thus, any stimulus package from China has to be very substantial to override the increasingly bleak picture coming out of the US financial sector. On our part, we think it is more productive to monitor the forthcoming third plenary meeting of the Communist Party in October, where major policy measures will be discussed for 2009.

[millionairemind]

Don't bet on rumors: Li
Stephanie Tong
Friday, August 22, 2008

Investors should not put their hopes on market-saving measures by the mainland government, Cheung Kong (Holdings) (0001) chairman Li Ka- shing warned yesterday.

JPMorgan on Tuesday said Beijing was considering an economic stimulus package of at least 200 billion yuan (HK$228 billion) to 400 billion yuan.

"I haven't heard of such news," said Li.

When the news was reported on Wednesday, the mainland market was up 7 percent while Hong Kong stocks jumped more than 400 points.

"Those who offload shares made money while those who bought may not have benefited," said Li.

"But it's not right to reap profit by taking advantage of market rumors.

"If you compare 400 billion yuan to the size of the stock exchange of Hong Kong, or that of Shanghai or Shenzhen, it is actually not a big amount.

"Relying on the government's market-saving measures is not practical at all."

Li reiterated that investors need to be careful when investing in the stock market from now until 2009.

Hang Seng Index yesterday dropped 539.2 points to end at 20,392 while the Shanghai Composite Index fell 91.57 points to 2,431.72.

Li warned that the worst time of Hong Kong's financial market is yet to come.

"The financial plight in the US has affected the UK and Europe, and is now spreading to Japan and Korea. Hong Kong will soon feel the impact," said Li.

"But when the worst time arrives, the situation of Hong Kong will still be better [than other countries]."

Hong Kong could escape from a potentially serious blow with support from China.

"It is not easy for a country of 1.3 billion population to have economic growth of more than 8 percent," Li said.

"China's gross domestic product growth this year is likely to lie between 8 and 10 percent.

"This will benefit Hong Kong a lot."
http://www.thestandard.com.hk/news_deta ... con_type=1

[winston]

Hong Kong braced for headwinds from the mainland
By Andrew Wood in Hong Kong

The closure of Hong Kong’s financial markets on Friday in the face of of Typhoon Nuri meant the territory’s traders were excused from battling against 120km per hour winds to reach their desks.

But with falls in other Asian bourses on Friday pushing the region to a fresh two-year low, Hong Kong investors may early next week face another struggle: keeping the benchmark Hang Seng index above the psychologically significant 20,000 level.

The Hang Seng’s 2.6 per cent fall to 20,392.1 on Thursday, left it down 27 per cent so far this year. It has now lost 36 per cent from its peak of 31,638.22 touched in October as investors have reacted to evidence that the fallout from the credit crunch is exacerbating a broad slowing of the global economy.

It has also been affected by even sharper share price falls on the Chinese mainland, where the Shanghai market, which is Asia’s worst performer, has lost about 60 per cent from its peak last year.

“The Hang Seng has been a bad performer in the year to date,” says Jing Ulrich, chairman of China equities at JPMorgan in Hong Kong, “because it has been pulled in two directions.”

With more and more Chinese companies listing on the exchange, the market has become increasingly sensitive to macroeconomic conditions on the mainland, she says.

Also, the Hong Kong dollar is pegged to the US currency. As a result, interest rates are, in effect, determined by the Federal Reserve in Washington, which means they cannot be tweaked to reflect local economic conditions.

The Hong Kong market has become much more integrated with the mainland since the former British colony was handed back to China in 1997.

HSBC bank is still the company with the heaviest weighting – about 16 per cent – in the Hang Seng index. But the next six are all mainland companies: there’s China Mobile, the world’s biggest telecoms provider with a market value of $236bn, with a weighting of 11.7 per cent, followed by some of the world’s other biggest companies: China Construction Bank, the Industrial & Commercial Bank of China, the oil companies PetroChina and CNOOC, and China Life Insurance.

H-shares – or the Hong Kong listing of companies that are also traded on mainland markets – account for 30.1 per cent of the Hang Seng’s capitalisation.

That figure rises to 53.2 per cent if one broadens the criteria to include mainland companies and their subsidiaries that are only listed in Hong Kong, and the local Hong Kong businesses that make most of their revenues or profits on the mainland.

“People are concerned that China’s growth is going to slow, and government policies have been unclear ahead of the Olympics,” says Garry Evans, Asia-Pacific equity strategist at HSBC. “Retail investors have lost confidence. That’s not good for equities – and it’s not good for property prices.”

The Hong Kong real estate market is traditionally prone to booms and busts, and its performance closely tracks equities.

“What drives markets is low interest rates – they tend to be good for both property and equity markets,” Mr Evans says, and they also both benefit from an influx of mainland money.

When the Hong Kong market lost 16 per cent in value in the first two weeks in August last year, Beijing surprised everyone with a plan – nicknamed the “through train” – to allow individual citizens on the mainland to buy Hong Kong shares directly for the first time.

Hong Kong jumped by 20 per cent over the next four days as investors anticipated the prospect of billions of dollars of Chinese savings flowing into the territory.

Unfortunately, the plan is still just a plan. “The through train is still stuck at the station,” Mr Evans says. “I think ultimately the problem is that the government in China realises you can’t just announce it and let it happen a few days later.”[b]

“The last thing they want is for investors to pile into the Hong Kong market again and so share prices rise quickly ahead of the start of the scheme. The government is thinking about how to handle it.”[/b]

Such sparks of volatility are typical of a market where smaller investors collectively command considerable heft.

Almost 36 per cent of Hong Kong adults, or 2m people, trade shares and warrants, according to the territory’s stock market operator, Hong Kong Exchange & Clearing. HKEx says 28 per cent of trading volume last year (in dollar terms) was from local retail investors. Together they contribute more to the market’s liquidity than local institutions.

The relative importance of individual investors can make for extra volatility when benchmarks approach psychologically noteworthy levels, such as 20,000.

Malcolm Wood, Asia-Pacific equity strategist for Morgan Stanley in Hong Kong, says he’s broadly optimistic about the longer term prospects for the Hang Seng, even if last week’s poor figures for economic growth have dragged prices down.

“I think many retail investors have already stepped away from the market,” Mr Wood says. But if the Hang Seng breaks below the 20,000 level then it could easily fall further. “If it were breached, it couldn’t be anything other than a bad sign. That might be another indicator for individuals that is just an unlucky year, and to get out,” Mr Wood says.

[winston]

This week will be the settlement of the futures contracts.

Therefore, the Hang Seng Index still has a chance to be quite volatile

[winston]

China mulls 370b stimulus package
KathyWang

China's leaders are carefully considering an economic stimulus package of about 370 billion yuan (HK$420.7 billion), including a 220 billion yuan new expenditure and 150 billion yuan of tax cut plan, that may ease the government's monetary policy by the end of the year, China Business News reported.

"Although the details are yet to be sorted out, there is such a plan, and it has been approved by a central finance planning team," state-run Xinhua News Agency said in a report yesterday.

The expenditure part will include the spending of 45 billion yuan on social welfare, 46 billion yuan on agriculture, 38 billion on education, 35 billion yuan on construction, and 28 billion yuan on import of energy and commodity products.

The package will also propose tax cuts of 150 billion yuan in total, including measures to raise the threshold of personal income tax, export tax rebate, and preferential tax packages for small and medium- sized enterprises.

However, concerns over whether to launch the plan within the year rose because officials aren't certain if the country has planned enough budget for it.

This year's snowstorms in southern China and earthquake in Sichuan have already cost China 35 billion yuan.

In the first half, China generated fiscal income of 3.4 trillion yuan, running a fiscal surplus of 1 trillion yuan.

Last week, JPMorgan released a report saying Chinese authorities were considering an economic stimulus plan of at least 200 billion yuan to 400 billion yuan. The controversial news, although unconfirmed by the authorities, helped boost the A-share index by nearly 8 percent in a single trading day.

[kennynah]

good idea....better start using some of their accumulated reserves for the betterment of their people... money cannot bring into coffin one... keep so much for what...who knows what will happen to USD in the next decade? scarly...become pang sai chwa.

[kennynah]

so...many people still in post olympic holiday mood ya....SSE macam no traction yet...

[-dol-]

HSI above 21,000... anyone care to declare the start of the post-Olympics rally? The medal of bravery beckons.

HK was lucky to be spared the weak trading in Asian markets on Friday (due to typhoon) and is now benefiting from Friday night's good % gains (on light volumes, though) in the US. SSE does not look convincing this morning.

[winston]

Yes, they were lucky. SSE was down 2% at one time on Friday.

Cannot see any reason for the euphoria today except for two things:-
1) the stimulus package that is pending approval
2) rumor of a cut in the bank reserve ratio

However, both the above should not propelled HSI to be up 700 points. Maybe 350 is reasonable ...

Short-covering ? Expiration of futures contracts this week ?