Index climbs as short sellers dash for cover

PUBLISHED : Thursday, 04 June, 1998, 12:00am
UPDATED : Thursday, 04 June, 1998, 12:00am

The Hong Kong share market staged a 2.57 per cent comeback yesterday as a rebound in the yen sent short sellers flying for cover, brokers said.

The Hang Seng Index rose 221.05 points to 8,819.22.

Properties rallied 3.32 per cent - the strongest performance by sector - as interbank rates eased.

A derivatives trader said: 'A lot of people got squeezed in the afternoon. One reason to cover: we saw the yen strengthen.' By late yesterday the yen had pushed back below 138 yen against the US dollar as the yen's fate was placed on the agenda of next week's meeting of the Group of Seven leading industrialised nations.

'Once the yen started to turn around - I think it's probably in anticipation of a G7 intervention - all the Asian currencies strengthened,' BNP Prime Peregrine head of sales Allen Chang said.

'This sparked buying across the region.' South China Brokerage vice-chairman Howard Gorges said short covering only explained part of the bounce, and that low valuations - the market has fallen 23.43 per cent this quarter - lured some bargain hunters.

Since March 31, all blue chips have fallen and 23 have seen their share prices slashed by more than 25 per cent.

'We've had some sharp short covering, but what we aren't seeing is all the shorts running for cover,' he said. 'Very large outstanding short positions remain, so the the market is likely to remain volatile.' Despite announcements of new government job-creation initiatives, yesterday's jump took some by surprise, giving rise to speculation that the Land Fund was intervening to try to sting short sellers.

'I personally believe there is not sufficient evidence to suggest a return of institutional investors,' ING Barings sales director James Osborn said.

'I don't trust the bounce. Hong Kong's economy is still sliding, the structural problems are still there. The rally's not sustainable.' Cathay Pacific was the day's biggest blue-chip gainer. It rallied 11.53 per cent to $5.80 but analysts said it was probably just a reflection of recent volatility.

'It got hit really hard last week,' Indosuez WI Carr transport analyst Samuel Lee said.

While he believes the stock is attractive on a price-to-book value, he does not think that explains its recent strength.

'Cathay's a funny stock,' Mr Lee said, pointing to the strong influence of the airline's bi-weekly company newsletter.

A positive report in the most recent copy, released on Monday, might have fuelled some of the bounce, he said.