Federal Reserve

More gains expected after positive mainland-US meeting on WTO entry

PUBLISHED : Monday, 13 September, 1999, 12:00am
UPDATED : Monday, 13 September, 1999, 12:00am

Hong Kong stocks should remain strong this week after tenuous Sino-United States relations were said to be 'back on track'.

Analysts said a positive discussion at the weekend between presidents Jiang Zemin and Bill Clinton about Beijing's entry into the World Trade Organisation should support last week's gains.

The discussion was held on the fringes of the Asia-Pacific Economic Co-operation summit in New Zealand.

Mr Clinton was reported as saying 'the US supports China's entry to the WTO as soon as possible'.

Dealers had said the market was anticipating such an outcome.

'It [the WTO talks] sets a positive trend which I think was in evidence last week,' Vickers Ballas director of research Andrew Fernow said.

'The market could be re-ignited with news of that kind, which is very positive and could have otherwise been a setback had it not been addressed in a favourable way.' In May, talks between the two countries about Beijing's possible entry into the WTO collapsed after Nato accidentally bombed the mainland's embassy in Belgrade.

Also straining ties were allegations of spying on US nuclear warhead technology.

The Hang Seng Index edged up just 1.05 points to close at 13,855.93 on Friday, off a high of 14,005.08.

Sources expected the index to again push through the 14,000-point barrier in the early part of the week.

'I think we will make some headway this week . . . any not so good news will probably force a bit of a consolidation . . . [but] the mood seems to be that the market could move ahead,' an analyst said.

Celestial Asia Securities' research manager George Chan Lung-cheung said the index had found resistance at 14,000 last week.

He said optimism about the mainland's WTO entry might result in an easing of the war of words between Beijing and Taipei.

'Any constructive dialogue could see the China and Taiwan tension easing,' he said.

'We could breach the 14,000 level [this] week.' DBS Securities research head Frederick Tsang said 'it would seem logical for it to trade to 14,000' because of the good buying in blue chips.

However, some said the market's momentum might be short-term as interest rate concerns from the US came back into play.

Last month, the Federal Open Market Committee (FOMC) raised US rates by 25 basis points.

Hong Kong's interest rates were also increased because the Hong Kong dollar is pegged to the US dollar.

The next FOMC meeting is on October 5 and market watchers are divided over whether the Fed will raise rates again.

Consumer price index data is due from the US this week, which could point to the likelihood of another rate increase in the US.

'The index could break through 14,000, but the question is for how long,' Mr Fernow said.

'Will it hold given the outlook for interest rates in October . . . I think it will have difficulty once it gets to 14,000 pushing above that.' Last week saw a rush on the so-called Internet-related sector, with heavy buying in leading players New World CyberBase and Pacific Century CyberWorks.

The rally could continue this week, with the technology-heavy US Nasdaq stock market's strong finish on Friday.