Tuesday 28 October 2008
Hong Kong: Short selling, investor panic blamed as the Hang Seng defies analysis
Brokers blamed yesterday’s stock bloodbath on rampant short selling and the collapse of investor confidence triggered by a wave of fund redemptions, a steep fall in currency markets and growing fears of a global recession.
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Short selling, investor panic blamed as the Hang Seng defies analysis
Denise Tsang
28 October 2008
Brokers blamed yesterday’s stock bloodbath on rampant short selling and the collapse of investor confidence triggered by a wave of fund redemptions, a steep fall in currency markets and growing fears of a global recession.
Many brokers said the magnitude of the stock slump, and it was so fast and unexpected that the movement of the index in the coming weeks would be beyond any technical analysis.
Optimistic brokers expected the Hang Seng Index would gain support above the 10,000 point level, but pessimists warned that it could test a new trough of as low as 8,000 points.
“It is panic selling,” VC CEF Brokerage director Louis Tse Ming-kwong said. “Institutional investors, fund managers, housewives, uncles, aunties, you name it, all were unloading their shares no matter how the Chinese state leaders talk up and boost confidence in the market.”
Trading was hectic, with turnover climbing 1.23 per cent to HK$56.83 billion.
What direction the Hong Kong market would drift in the next couple of days would depend on how the world reacted to a looming interest rate cut in the United States, brokers said.
The US Federal Reserve is widely expected to cut interest rates by 50 basis points during meetings today and tomorrow to stimulate America’s slowing economy.
On Thursday, the United States is due to reveal its third-quarter macroeconomic figures.
The global money markets remained volatile, with strong appreciation of the yen and US dollar this month as the credit crunch hurt confidence in riskier assets in emerging markets and so-called carry trades that use money borrowed in the Japanese currency to buy assets abroad that pay higher interest rates.
“I am optimistic. If the Dow Jones reacts positively to the rate cuts, the Hong Kong stock market will follow and bounce back,” Christfund Securities research director Simon Lam Ka-hang said.
He pointed out the Hang Seng gains strong support at 11,000 points.
Yesterday, all of the 42 Hang Seng constituent stocks declined. The Hang Seng China Enterprises Index, which tracks the so-called H shares of mainland-based companies that trade in Hong Kong or elsewhere, dropped 14 per cent to 4,990.08 points.
The Hong Kong government anticipates the city’s economic growth to slow to between 4 per cent and 5 per cent this year from 6.4 per cent last year.
Gloomy sentiment took hold in the city yesterday when doughnut chain store Krispy Kreme went into liquidation.
Many shares sold so heavily they returned to levels not seen in recent years. The question now is whether investors dare to buy. HSBC dived HK$13, or 14.77 per cent, to HK$75. The last time it was at that level was during the Sars epidemic in April 2003.
HSBC could test a new trough of HK$70, the lowest since September 2001, according to Fulbright Securities general manager Francis Lun Sheung-nim.
Mr Tse of VC CEF, who described yesterday’s fall as a bloodbath of the sort he had not seen in his decades-long career as a stockbroker. It was as dangerous as trying to catch a falling knife, he said.
“This depends on investors’ confidence, which tumbled to zero today,” he said. “Cash is king now.”
Banking and finance stocks also took a heavy beating, with Bank of East Asia the biggest loser. The bank dropped HK$2.54 or 15.95 per cent to HK$13.38. It revealed after the market closed that it would record a HK$2.2 billion loss in the second half of this year after divesting its credit-market investments.
Industrial Commercial Bank of China, the world’s biggest bank by value, fell 35 Hong Kong cents, or 11.11 per cent, to HK$2.80, its lowest close since going public two years ago. The bank said last Friday that its third-quarter profit grew 26 per cent, the smallest growth since its listing.
Commodity players did not fare better. Aluminum Corp of China, or Chalco, fell 13 per cent to a fresh low of HK$2.17 since August 2003 after reporting a 92 per cent decrease in net profit to 182.9 million yuan in the third quarter of this year on slumping metal prices and demand.
Conglomerate Citic Pacific continued its slide, shedding HK$1.40, or 28 per cent, to its all-time low of HK$3.66 since its listing in 1990. The group, chaired by tycoon Larry Yung Chi-kin, faced potential claims from stock investors who were burnt by a recent share slide linked to a more than HK$15 billion loss in foreign exchange investments.
Trade exporter Li & Fung was HK$1.6, or 12.14 per cent, lower to HK$11.58 on fears of a looming recession in its core markets, the US and Europe.
Utilities stocks, traditionally safe havens, did badly with Hong Kong and China Gas leading the decline at 17.63 per cent, or HK$2.01, to HK$9.39.
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