Breakthrough breathes new life into dull market
A RESPECTABLE break through 9,300 in trading yesterday turned a moribund market in Hang Seng Index futures and cash into a more interesting challenge.
Overseas cash in afternoon trading triggered a surge in the cash and futures, which was helped by a squeeze among investors who maintained short covering throughout the rally.
September futures lifted 150 points to their highest level since August 2, at 9,430. The close left the contract on a relatively strong premium of 37 points.
October futures rose by the same number of points to 9,460, a premium over the cash of 67 points.
Turnover in futures was relatively healthy at 16,714 contracts split between September at 16,308 and October with 22 contracts. The big bullishness in the futures and cash appears to be running in the face of market valuations. The price earnings ratio in the cash at the close was 13 times current earnings and 11.6 times prospective earnings.
In index options the implied volatility was at about 19 per cent, up about 25 basis points.
Jardine Fleming said premium buyers were in September calls and puts was behind the rise.
'Trading in the back months was mixed,' Jardines said. 'Overseas traders bought the October 9,200/9,600 call spreads while locals sold March 9,600 calls.'.
The 10,000 October strike will be introduced on Monday.
Open interest for Thursday in September was 38,499 contracts. In October it was 1,200 contracts and in December it was 132 contracts.
Open interest in index options for September was 7,151 calls and 9,667 puts. In October it was 1,392 calls and 2,482 puts. In December it was 4,993 calls and 2,547 puts. In March 1996 it was 774 calls and 569 puts.
Given liquidity and trading momentum the cash and futures could be set to make more ground next week - as long as there are no surprises from North America over the weekend.
As long as the long bond yield in the US remains weak at below 6.6 per cent then buoyancy can be expected in equities, fuelling rises in Hong Kong stocks.
Fundamentally, the upside, however, is capped by relatively weak earnings expectations for 1996.