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

[kennynah]

those who can....do

whose who cannot.... kpkb

[winston]

Hong Kong May Use Foreign Reserves to Prevent Financial Crisis By Wendy Leung

Oct. 12 (Bloomberg) -- Hong Kong may use all of its foreign reserves to stabilize its financial markets, said a government official, after the global credit crisis undermined investor confidence and caused stocks to plunge.

``We'll use all the ammunition if we have to,'' Julia Leung, under secretary for financial services, said in an interview with Hong Kong Commercial Broadcasting. ``Hong Kong should have faith. Smaller companies are already being hit by the lack of capital in the market.''

Hong Kong holds HK$1.4 trillion ($180 billion) of foreign currency reserves, the network cited Chief Secretary Henry Tang as saying. The benchmark Hang Seng Index plummeted 29 percent since September as the financial crisis brought down Lehman Brothers Holdings Inc., and threatens a wave of global bankruptcies.

``The U.S. ended up suffering a domino effect when the government didn't rescue Lehman Brothers,'' Billy Mak, a finance professor at Hong Kong Baptist University, said today by phone. ``Hong Kong needs to stabilize its financial market by any means or see problems in all industries.''

Foreign reserves should be used to support the local currency's peg to the dollar so as to avoid bank runs, Mak said.

Hong Kong Monetary Authority Chief Executive Joseph Yam directed $15 billion of government stock purchases to defend the Hong Kong dollar 10 years ago, guiding Hong Kong through the Asian financial crisis that started in 1997.

``We will support the idea if there is need because the legislative council is very concerned that an economic meltdown will affect the public,'' pro-democracy legislator Emily Lau said today in a phone interview.

No Confidence

Bank of East Asia Ltd. suffered a brief run on its deposits last month after messages spread by mobile phone questioned its finances. While depositor withdrawals ended after BEA and the government said the bank's finances are sound, the incident underscored how the financial crisis has undermined confidence in the global banking system.

Shares of BEA have dropped 28 percent since the rumors started on Sept. 22, compared with a 25 percent plunge by the Hang Seng Index.

Hundreds of Hong Kong investors protested in streets outside the city's parliament and banks this week, demanding compensation for investment losses linked to the Lehman Bothers collapse. More than 500 investors joined a public rally yesterday to express anger at having been misled by banks, the Straits Times reported.

Coordinated Effort

Asian central banks are studying ways to coordinate an effort to tackle the financial crisis that threatens to erode growth and confidence in the region, Diwa Guinigundo, deputy governor of the Philippine central bank, said yesterday.

The MSCI Asia Pacific Index fell 17.8 percent this week even as central banks in China, Australia, South Korea, Taiwan and Hong Kong joined a global effort to cut interest rates after the yearlong credit-market seizure.

Indonesia halted stock trading for two days this week, while a plunge in Thailand's SET Index triggered that nation's first 30-minute trading halt in almost two years.

South Korean Finance Minister Kang Man Soo is meeting counterparts from Japan and Australia in Washington this weekend to discuss boosting regional cooperation to the financial crisis from spreading to Asia.

``It's a matter of faith,'' Mak said. ``Hong Kong's financial system hasn't had serious problems so far.''

[iam802]

Is this really a good move to use ALL its foreign reserves?

What if it does not work? Or they 'burnt' the reserves faster than the economy can recover?

[kennynah]

fundamentally, HK SAR is part of the big brother China....when and if they do use up all of their foreign currency reserves and things dont look to improve, China will come to the rescue surely... HK SAR is one of the pinnacles of Chinese financial cities.... chances of it collapsing....slim imo

[winston]

Goldman, Sachs & Co. lifted its rating on Hong Kong-listed Chinese stocks to ``overweight'' on speculation the government in Beijing will introduce a packaged of measures to stimulate the economy.

Analysts at the brokerage including Timothy Moe said ``there is substantial market conjecture on the potential measures the government might imminently announce.'' Goldman previously rated the shares ``neutral.''

``There is a good case for a return to the 10,000 level'' in the H-share index, according to the report.

[winston]

TOL:-

Headlines on CNBC: "Markets in Crisis". Sounds like end of the world right ? Makes you want to sell everything with the hope of buying them back later at a cheaper price, right ? But wait. Have a look at the Price and Volume. If Prices are down with very low Volume .....

Again, the above is help me think through what I want to do today. I'll probably be waiting for the chance to buy some HSI puts today, probably towards mid-day when the shorts have pocketed some of their windfall profits. However, I'm also very worried that the Chinese and HK regulators may do something to support the market. The CEO of HK yesterday mentioned that he will take decisive action. What does that mean ?

Why is HK continuing to allow short-selling ? Is it to redeem themselves after they have bought HKEX at a very high price, spent US$15b during the Asian Financial Crisis or do they want to squeeze the inexperienced shorts ?

[winston]

China to release Q3 GDP data on Monday

BEIJING - China will issue its third-quarter gross domestic product growth and other economic data for September on Monday at 0200 GMT, the State Council Information Office said.

That is a day earlier than originally scheduled by the National Bureau of Statistics.

Economists polled by Reuters expect annual GDP growth to have dipped to 9.7 per cent in the third quarter, ending a 10-quarter streak of double-digit growth. -- REUTERS

[winston]

China to Take Steps to Stabilize Market, Shang Says (Update1)
By Zhao Yidi and Zhang Dingmin

Oct. 17 (Bloomberg) -- China's securities regulator said the government will unveil measures to stabilize the country's markets, while exhorting banks to avoid ``excessive'' financial innovation.

The U.S. credit crisis ``poses grave challenges to China'' yet the country's economy is functioning well, Shang Fulin, chairman of the China Securities Regulatory Commission, said at a Beijing conference today.

``We must pay attention to the risks involved when we pursue financial innovations,'' Shang said. ``China will study the links between innovation and risks from the financial crisis and the fundamental reason that caused the crisis.''

Shang is trying to prevent the rout in the global equity markets from adding more weight on China's benchmark CSI 300 stock index, which plummeted 66 percent this year as Asia's worst-performer. The Chinese central bank cut interest rates twice, following the measure by Asian, European and U.S. monetary authorities to inject cash and providing liquidity to keep the financial system running.

Vice Premier Wang Qishan said the government will use a wider array of measures to ensure stability of the capital market as well as the economy, the official Xinhua News Agency reported on October 14. The government will ban cross-border fund flows, push publicly traded companies to return more money to investors and toughen rules to punish insider trading, Shang said today.

Coordination Needed

``A lack of transparency on information made investors lose confidence,'' Michel Prada, chairman of France's market regulator Autorite des Marches Financiers, said at the same conference today. ``Regulators should enhance cooperation and consider supervising debt and structured products.''

The People's Bank of China cut interest rates on Oct. 8 at the same time as a coordinated reduction by the U.S. Federal Reserve and five other central banks aimed at easing the global credit freeze.

The stocks regulator is poised to name the first four brokers that are allowed to trade equities on credit, aiming to attract investors to Asia's second-largest capital market. Brokers may earn 6.6 billion yuan ($966 million) in 2009 interest income from margin trading and short selling, the Shanghai Securities Journal said on Oct. 6, citing an estimate by Haitong Securities Co.

The Chinese government has scrapped its tax on stock purchases and relaxed company buyback rules to help support the world's worst performing major stock gauge this year. As the economy slows, corporate earnings and bad debts are expected to worsen.

China's cabinet has already approved a plan to let investors buy shares on credit and sell borrowed stocks to help develop the domestic market -- this at a time when regulators in the U.S., Europe and Australia have banned short selling to calm market volatility.

[millionairemind]

China Mulls Letting Four Brokers Try Margin Trading (Update1)
By Zhao Yidi

Oct. 17 (Bloomberg) -- Citic Securities Co., Haitong Securities Co., Guotai Junan Securities Co. and Everbright Securities Co. may be allowed to offer margin trading by China's government, an official with knowledge of the matter said.

The securities regulator's pilot program, which would let investors borrow money and stocks from the four brokerages, may start as early as mid-November, according to the official, who declined to be identified because the information isn't public.

The China Securities Regulatory Commission aims to lure investors and expand the nation's capital market as slumping stock values erode trading. Brokerages may earn 6.6 billion yuan ($966 million) of interest income from margin trading and short selling next year, the Shanghai Securities Journal reported Oct. 6, citing an estimate from Haitong.

``Margin trading will enable securities companies to increase their income sources,'' said Liang Jing, a Shanghai- based analyst at Guotai Junan Securities. ``Lending cash and earning interest income should add about 8 to 10 percent profit for Haitong and Citic.''

Haitong rose 4 percent to 18.90 yuan as of 9:37 a.m. in Shanghai trading and Citic gained 3.5 percent to 18.93 yuan. Guotai Junan and Everbright are privately held.

Raymond Tang, a spokesman for Citic, and Guotai Junan spokeswoman Jin Yi declined to comment. Spokeswomen Sun Tao of Haitong and Wang Jiaojiao of Everbright weren't immediately available to comment.

Supporting Stocks

The CSRC on Oct. 5 said it would soon allow margin trading and short selling, initially driving shares of Haitong, the country's largest brokerage by market value, and other securities firms higher on optimism the initiative would boost profits.

China, which clamped down on unauthorized margin trading in 1997 and 2001, has scrapped the tax on stock purchases and relaxed company buyback rules to help support Asia's worst- performing benchmark stock index this year. The CSI 300 Index has tumbled 66 percent since Jan. 1 as an equities bubble burst.

Brokerages are required to have more than three years of trading experience and the highest rating awarded by the Securities Association of China, which is overseen by the CSRC, to receive approval for margin trading, according to rules published by the nation's two stock exchanges in 2006.

Securities firms that qualify can lend investors cash and stocks, earning commissions and interest income. Investors are allowed to borrow up to twice the amount of margin, and use the cash to buy stocks, according to the 2006 rules.

Investors can also short sell selected stocks that they borrow from the brokerages, betting they will be able to buy them back at a lower price and profit from the difference.

The Shanghai and Shenzhen bourses will publish a list of stocks that can be loaned to investors, according to the official. The stocks would be selected from companies that have been traded on the exchanges for more than three months and have a market capitalization of at least 800 million yuan.

[winston]

China Stocks to Gain on Support Measures, Guotai Says (Update1) By Chua Kong Ho

Oct. 17 (Bloomberg) -- China's Shanghai Composite Index, down 69 percent from its record high a year ago, is poised to rally even as the deepening financial crisis hammers equities worldwide, the country's largest brokerage by assets predicts.

The Shanghai Composite Index will climb 88 percent to 3,600 points in the next 12 months as government measures to bolster economic growth take effect, Zhang Xiuqi, Shanghai-based strategist at Guotai Junan Securities Co. said in an interview. The index peaked at 6,092.06 on Oct. 16, 2007, and closed at 1909.94 yesterday.

( Which Planet is this guy from ? )

``The plunge in stock values this year has more than priced in a slowdown in China's economy and the impact of the global crisis,'' Zhang said in a telephone interview, calling his forecast ``conservative.'' He recommends investors favor bank, telecommunications and drug stocks.

China's stocks, the world's most expensive at their peak, are still pricier than U.S. and European shares after the credit freeze triggered a global rout this month. China's government has cut interest rates twice and may boost spending to protect an economy that slowed for a fourth consecutive quarter in the three months through June.

Analysts including Zhang have remained bullish on Chinese equities even as the weakening economy deepened the market's one-year slump. There were ``buy'' ratings on 60 percent of the country's stocks in that time, Bloomberg data show.

Zhang said in April that ``fair value'' for the Shanghai Composite was at 3,300 points, 73 percent higher than yesterday's close. The gauge's average value in the second quarter was 3,318.80.

Stock Bubble

Economic growth at more than 10 percent and soaring earnings helped the broader CSI 300 Index, which measures stocks traded in Shanghai and Shenzhen, to more than double in 2006 and 2007, sending valuations to the most expensive in the world and prompting former Federal Reserve Chairman Alan Greenspan and Hong Kong billionaire Li Ka-shing to warn last May of a stock market ``bubble.''

More than 300,000 investors opened new accounts daily at the height of the rally last year. Both the CSI 300 and Shanghai Composite peaked on Oct. 16, 2007.

Mark Konyn, Hong Kong-based chief executive officer at RCM Asia Pacific, is skeptical that it's time to buy Chinese equities. The Shanghai Composite Index is valued at 13.7 times estimated earnings, more than 11.6 times for the Standard & Poor's 500 Index and 7.9 times for Europe's Dow Jones Stoxx 600 Index. The Shanghai measure was at 49.4 times at its peak a year ago.

`Shattered Confidence'

``Confidence has been shattered and it's going to take time for that to come back,'' said Konyn, who is ``underweight'' equities. His company holds $15 billion of Asian assets.

Zhang's bullish view is shared by Michael Hartnett, Merrill Lynch & Co.'s chief global emerging markets strategist, who upgraded Chinese shares to ``overweight'' Sept. 2, saying that ``pro-growth policies'' will ease the economic slowdown.

The People's Bank of China cut interest rates for the first time in six years last month and followed that with another reduction three weeks later as central banks around the world cut borrowing costs to unlock frozen credit markets. China's $200 billion sovereign wealth fund also increased its stakes in the largest state-backed banks to shore up investor confidence.

The government will probably cut borrowing costs further and lower bank reserve requirements, freeing up lending and ensuring that a decline in earnings growth will end in the second quarter of next year, said Guotai Junan's Zhang.