No sign of a quick recovery for Hong Kong
Monday 01 September 1997
Although reasons for further pessimism abound, some big Hong Kong investors, such as Mark Mobius, the high-profile president of Templeton Emerging Markets Fund, believe that Hong Kong offers good value at the current lower prices.
Nevertheless most brokers are not prepared to stick their necks out and predict any sudden turnaround. Hong Kong shares may well be trading at giveaway prices, but there is no escaping the market's location in a region which is being deserted in droves by big institutional players.
Moreover, the very liquidity of the Hong Kong market and the fact that it has not lost all the gains made during the past year, make Hong Kong shares the target for sales by fund managers under pressure to raise cash. With investors queuing up to sell their South-east Asian funds, the managers need money to pay for the redemptions.
While this selling pressure lasts, Hong Kong's blue chip index, predominantly traded by institutions, will have a hard time making a recovery. However the rest of the market, which is dominated by local investors, is moving in a different direction.
While blue chips were losing almost 5 per cent of their value last Friday, China-related shares - the so called "red chips" heavily favoured by local investors - shed less than 1 per cent in value. At the same time, the index tracking medium-sized companies fell only 1.5 per cent and the broader all ordinaries index dropped by 3.8 per cent.
In these circumstances, blue chips are in the unusual position of increasingly trading at a discount to the rest of the market. Cheung Kong, the flagship company of Li Ka-shing, Hong Kong's most influential businessman, is now trading on a price/earnings ratio of under 14. This is fraction of the valuation placed on most leading red chip companies, which would seem to reflect confidence that these groups will weather current storms.
Determined optimists may also take heart from the banking cartel's decision last Friday not to raise interest rates. The high level of overnight rates, caused by occasional pressure on the Hong Kong dollar, could have triggered a general rise in interest rates. However, while other Asian currencies have tumbled, the Hong Kong dollar has managed to preserve its fixed link with the US dollar without much fluctuation.
The aggressive market activities of the Hong Kong Monetary Authority have maintained this stability, but at a price in interest rate terms: on some days the overnight interbank rate, at which banks borrow from each other, has exceeded the rate of interest they are earning from prime customers.
- 1 Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
- 2 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 3 Bill Cosby: Isn’t it obvious why his accusers have stayed silent up until now?
- 4 Halle Berry takes ex-boyfriend Gabriel Aubry to court for allegedly trying to make daughter look less African-American
- 5 Isis propaganda image showing 'abuse of Muslim woman by soldiers' is actually taken from Hungarian porn film
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Revealed: How the world gets rich – from privatising British public services
Exclusive: UK approved £7m Israeli arms sales in six months before Gaza conflict
iJobs Money & Business
£Attractive: Citifocus Ltd: High calibre individual with significant product d...
£Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...
£Attractive Package: Citifocus Ltd: High calibre individual with a high degree...
£Attractive: Citifocus Ltd: High calibre individual with superior academics an...