Big-caps popular as short sales rise
Short sales volumes in the Hong Kong stock market yesterday struck their highest level so far this year, with their influence magnified by dwindling turnover ahead of the Lunar New Year break.
Bets placed against the cash market as a proportion of turnover hit 18 per cent, with solid stock-lending of HSBC Holdings, China Telecom and Hang Seng Bank.
Stock lenders said there had been a modest increase in demand in recent weeks after a fourth-quarter lull and regulatory changes in September in the wake of the Government's market intervention.
'It's no problem getting stock,' one player said.
Many houses had predicted the Hang Seng Index could falter when the results season - which started this week - got under way.
Last month, the index rose above the 10,800-point level amid lower interest rates, prompting many strategists to say the liquidity-driven rally could soon unwind.
One broker said United States trustee houses - a key source of Hong Kong stock for borrowing - might become more relaxed about the stability of the market.
Short selling was $145.16 million yesterday, after Wednesday's $223.06 million.
Brokers noted open interest in the futures market had been steadily growing, which might indicate the building of some large short positions.
On Wednesday open interest was 55,056 contracts compared with about 30,000 two months ago.
Brokers said arbitrage desks were providing a welcome source of liquidity.
'Most retail investors are very much out of this market, institutional investors are on the sidelines but the index arbitrage guys are typically always in the market,' Macquarie Equities institutional sales Asad Sultan said.
Brokers said borrowers took advantage of slim borrowing costs and arbitrage opportunities involving futures and other derivative plays.
One US investment bank was seen yesterday offering to lend a large pool of First Pacific stock, tempting investors who believe the second-tier conglomerate's recent healthy gains have been overdone.
China Telecom was also a popular target, given talk of deregulation of the mainland telecommunications market and its lofty pricing.
One broker said the overhang of the Government's share portfolio also encouraged short selling activity, on the belief the dumping of the shares could be imminent.
