Stocks soar on interest rate hopes

PUBLISHED : Friday, 28 July, 2006, 12:00am
UPDATED : Friday, 28 July, 2006, 12:00am

Property, banking gain as likely pause in Fed rises seen boosting home sales

Hong Kong shares surged to their highest level in almost three months yesterday as growing investor hopes that global interest rates may be near their peak spurred rallies in property and banking stocks.

The Hang Seng Index extended its gains for a fourth day, soaring 299.53 points, or 1.8 per cent, to close at 16,916.77, its highest close since May 11. So far this year, Hong Kong is the sixth best performing market in Asia-Pacific, with the Hang Seng Index up 13.72 per cent.

'Interest rates are certainly near the peak,' South China Securities vice-chairman Howard Gorges said. '[But] having had a good run, the market may need to consolidate a bit before it goes much further up [from] here.'

The latest bout of optimism over the likely course of interest rates was sparked by the US Federal Reserve's 'Beige Book' report on current economic conditions, which found evidence that the pace of growth is slowing.

The Federal Open Market Committee holds its next meeting on August 8 and investors are increasingly betting it may stand pat.

Not surprisingly, interest rate-sensitive businesses, such as property and banking, were the big winners. Sun Hung Kai Properties, the city's biggest developer by market value, jumped 2.19 per cent to $81.80. Its biggest rival, Cheung Kong (Holdings), jumped 1.08 per cent to $84.35 while Henderson Land Development rallied 2.96 per cent to finish at $41.70. New World Development surged 3.62 per cent to $13.18.

Although the news is good for stocks, much of the impact is probably already reflected in share prices, and other factors are likely to assume growing importance.

'Peaking interest rate alone may not keep the rally in property stocks going in the near term [since] the key is whether developers score well in new project sales this year,' said Conita Hung, head of research at Delta Asia Financial Group.

'The overall outlook for the Hong Kong market also depends very much on HSBC's upcoming interim results.'

HSBC Holdings will kick off the earnings season of locally listed companies when it unveils its interim results on Monday. Analysts reckon its earnings are likely to grow by 8 per cent to 14 per cent.

Investors anticipating strong results helped send HSBC shares up 1.01 per cent to close at $140.20. The stock, the most actively traded yesterday, accounted for 9.78 points of the Hang Seng Index's gain.

China Mobile shot up 5.01 per cent to close at $49.30 after its long-term credit rating was upgraded to 'A' from 'A minus' by Standard & Poor's, accounting for nearly half of the index's gain.

Turnover soared 47.17 per cent to $28.89 billion yesterday from $19.63 billion on Wednesday.

Traders attributed the heavy turnover to futures-related trading ahead of the expiration of July index futures today.

The Hang Seng Index Futures contract for July closed up 317 points at 16,942 yesterday, 25.23 points higher than the close in the cash market.

Mainland stocks also gained yesterday, with the H-share index rising 1.24 per cent to 6,822.29.