The bears are back. Short sellers piled back into the stock market this week, forcing long-term investors to don their tin hats yesterday as the Hang Seng Index teetered on a precipice, in danger of closing below the psychologically important 20,000 mark.
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HSI clings to key 20,000 level as optimism wanes
Short sellers pile into stock market sensing profit opportunity
Naomi Rovnick
30 January 2010
The bears are back. Short sellers piled back into the stock market this week, forcing long-term investors to don their tin hats yesterday as the Hang Seng Index teetered on a precipice, in danger of closing below the psychologically important 20,000 mark.
This week, in an attempt to profit from their hunch that the stock market will fall, short sellers have attacked the Tracker Fund of Hong Kong. On Wednesday, short sales accounted for 48 per cent of the trades in the fund, according to Bloomberg. This was the highest level of bets against the fund since February last year, just before the Hang Seng Index itself hit a year low.
The Hang Seng dipped below the 20,000 mark for much of yesterday before managing to claw to the support level in time for the closing bell, finishing down 234.38 points at 20,121.99.
The Tracker Fund is the largest exchange-traded fund in Hong Kong tracking the Hang Seng Index. As it is traded like a share, shorting it is a popular strategy for hedge funds which think the market it mirrors is due for a losing streak.
Short sellers borrow shares they do not own from brokers and hope to buy the securities back at a lower price to turn a profit.
“The market is very volatile,” said Castor Pang Wai-sun, a strategist at Sun Hung Kai Financial.
“Many investors were optimistic last year, predicting a world economic recovery. But that has turned to pessimism as the data that has come out seems to lack the uptrend everyone was hoping for.”
The fragility of the United States economy has also weighed on Hong Kong stocks, Pang said.
On January 22, President Barack Obama vowed to rein in the size and activities of investment banks. This insecurity about shrinking profits on the Street of Dreams, followed by weak jobs data, is hammering US share prices.
The Dow Jones Industrial Average tumbled 163 points in the past two trading days to 10,120.46. New claims for jobless insurance benefits in the US dipped slightly to 470,000 in the week to January 23, sharply higher than most forecasts of 450,000.
Economic jitters in Europe are also weighing on the Hang Seng, with fears that the Greek government may default on its debt repayments.
“Monetary tightening in China is also worrying investors,” Pang said.
Chinese banks ended yesterday in negative territory, with the two largest, ICBC and Bank of China, down 2.1per cent and 1.3 per cent respectively in Hong Kong trade. Mainland banks extended more than one trillion yuan (HK$1.14 trillion) in loans in the first 20 days of this month, an astonishing figure which sent regulators scrambling to tighten their grip on credit.
ICBC and Bank of China are among a group that Beijing has forced to temporarily halt lending.
Shanghai A shares rounded off a five-day fall yesterday, falling through the significant 3,000-point mark to close at 2,989.292.
This came on the back of some unpatriotic behaviour from domestic investment houses. Mainland mutual funds have cut the proportion of assets under management they plan to buy stocks over the next three months to an average 82 per cent, their lowest recommended weighting for equities in four months, according to a Reuters poll.
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