Hutchison Whampoa

Fears for greenback and growth pull index down

PUBLISHED : Tuesday, 25 April, 2006, 12:00am
UPDATED : Tuesday, 25 April, 2006, 12:00am

Prospect of China cooling measures adds to downbeat mood as shares soften after rally

Hong Kong stocks followed a regional sell-off yesterday on concerns that a weaker US dollar and high oil prices will affect growth in Asia. Investors also reacted to worries that the mainland may launch another round of macroeconomic control policies after the May 1 holiday, pulling down China stocks.

The H-share index lost 208 points at one stage but finished the day at 7,051.94, down 1.98 per cent or 142.82 points while the Hang Seng Index suffered its biggest single-day decline in a month, dropping 206.48 points to finish 1.22 per cent lower at 16,705.67.

Turnover was strong, at $41.69 billion worth of shares after $40.86 billion on Friday.

'I think the overall weak sentiment will remain during the week,' said Louis Wong, a research director at Phillip Securities. 'The market is now less resilient to bad news as the valuation of Hong Kong stocks is high after the recent rally.'

He said the blue-chip index would gain support at 16,500 to 16,550, while the resistance level would be around 16,850. The H-share index is expected to trade between 6,900 and 7,150.

Concerns over possible macroeconomic measures on the mainland affected property plays and sectors troubled by overcapacity.

PICC Property and Casualty was badly hurt after its worse than expected results for last year, tumbling as much as 16 per cent in intraday trading, finishing the day 13.76 per cent lower at $2.975.

Bucking the trend, however, was Hutchison which after Friday's close announced its plan to sell a stake in its ports division for US$4.3 billion to Singapore's state-owned PSA International.

The conglomerate rose to a 21/2-month high of $77.60, gaining 3.12 per cent, after touching $79.05 in the middle of the session, with $3.92 billion worth of shares changing hands.

Morgan Stanley raised the target price on the counter to $93 to reflect the additional value created through the sale of 20 per cent of its port operations to PSA and a minor upward revaluation of its remaining stake in the ports, according to the bank's morning summary.

'The global merger and acquisition environment is extremely favourable and Hutchison is one of the most successful assets traders globally and this transaction illustrates that the company has not lost this ability,' said strategist Rob Hart and analysts David Ng and Angus Kon Chan.

'Despite our belief that the Hong Kong market should correct in the near term, Hutchison stock should avoid that pitfall.'

Morgan Stanley is acting as financial adviser to PSA on the deal.

Macquarie Research analyst Mark Simpson said: 'We see this announcement as a reason for the stock to break back above $80.'

In a daily preview, he wrote: 'For the year, we have raised our target from $88 to $99.80. Ex[cluding] 3G assets, we price the stock at $92.15 with the 3G assets adding a further $7.66.'

But Citigroup maintained a sell rating on Hutchison. 'The transaction has sacrificed recurrent cash flow [albeit for a good price] to fill the 3G hole,' according to analyst Anil Daswani.

Cheung Kong, Hutchison's parent company, also benefited from the sale. Shares in the developer rose 0.45 per cent to a new five-year high of $88.45.