Hang Seng Index

HK stocks surge as concern on rates eases

PUBLISHED : Saturday, 17 June, 2006, 12:00am
UPDATED : Saturday, 17 June, 2006, 12:00am

Fed chairman Ben Bernanke's message about US economy kick-starts region

The Hong Kong stock market posted its biggest gain in almost two years yesterday as interest rate concerns eased following remarks by Federal Reserve chairman Ben Bernanke that the United States economy can withstand rising energy costs.

Tracking Thursday's gains on Wall Street, the Hang Seng Index surged 2.64 per cent to close 407.57 points higher at 15,842.65. It was the largest percentage increase since June 24, 2004. Turnover rose to $32.98 billion turnover from Thursday's $26.71 billion.

HSBC Holdings rose 1.72 per cent to $135.60 and China Mobile climbed 4.21 per cent to $42. The two stocks, whose weightings account for about half of the index, contributed 186.51 points to the blue-chip index's gains.

Regional markets generally rose, with the Nikkei-225 Index adding 2.82 per cent, the biggest increase in four months; the Korea Composite Index rising 3.5 per cent, the most in 18 months; and Taiwan's Weighted Index climbing 2.32 per cent. Jakarta's Composite Index was the best performer with a gain of 5.46 per cent.

The mainland stock markets also advanced. The Shanghai Composite Index rose 2.63 per cent, the biggest gain since May 8, while the Shenzhen Composite Index added 2.43 per cent.

'Concerns about inflation may have been a bit overblown,' said Eleanor Wan, the head of retail business at Allianz Dresdner Asset Management.

Hong Kong's stock market has undergone mixed fortunes over the past few weeks as investors worried the US may be forced to lift interest rates to curb inflation.

The US central bank has lifted rates for 16 consecutive quarters by 25 basis points each since June 2004, and Hong Kong lenders in many cases mirrored the increases.

The city's interest rates track those of the US due to the currency peg and local bankers have said that if the US were to lift rates, Hong Kong was likely to follow.

However, Mr Bernanke's comments on Thursday eased worries that inflationary pressure would prompt such action by the Fed.

Gains in interest-sensitive property stocks in Hong Kong outpaced the benchmark yesterday with the industry sub-index closing 2.86 per cent ahead.

Traders, however, said property plays would remain bumpy because the outlook for interest rates was unclear and new homes sales showed no sign of picking up.

Mainland stocks posted higher gains yesterday with the H-share index jumping 5.04 per cent to 6,340.96 points, the biggest rally in almost two years.

Shares of ZTE Corp, a telecommunications equipment maker, led the H-share gainers, surging 10.66 per cent to $24.90.

'The rebound is not likely to be an end of the correction, which I believe will last until August or September,' said Trevor Cheung, the head of research at DBS Vickers Securities.

Mr Cheung expects the Hang Seng Index to remain volatile in the coming months on the uncertain global interest rate outlook. However, China stocks will be more resilient.

'I believed the index upside will be restricted in the near future as investors losing money in the past few months will want to exit their shares once the index rebounds to a higher level,' he said.

Asian wave

HSI records highest percentage increase since June 2004

Korea Composite Index rises 3.5pc, the most in 18 months

Jakarta the best market performer with 5.46pc gain