More pain, no gain as investors face market storm towards 18,500
There is still more pain to come for Hong Kong investors after the slump over the past three weeks, according to fund managers who see the pall over the market hanging around for the short term.
The Hang Seng Index yesterday fell 2.57 per cent to close 496.21 points lower at 18,836.93. It has lost 1,874.72 points or 9.05 per cent since February 23. Turnover was HK$51.64 billion, compared with HK$42.29 billion on Tuesday.
'It's not over yet,' said Louis Wong Wai-kit, a director at Phillip Securities. 'We may have to test lower support levels because of the liquidity crisis over concerns about the deterioration among sub-prime lenders in the United States and the strengthening of the Japanese yen.'
Mr Wong expects the Hang Seng Index to fall below 18,500 points before any rebound gains traction.
Kenny Tang Sing-hing, an associate director at Tung Tai Securities, said the market should start to rebound at 18,000. 'You'll see strong support at that level and will have a rally kick back in,' he said.
Exporters, caught up in concern over an economic slowdown in the United States, and companies sensitive to interest rates, such as banks and property firms, are likely to be the biggest victims of the slide in sentiment. Utility and infrastructure stocks, typical defensive plays, and firms with significant exposure to the mainland market are more likely to better weather the storm.
Particularly attractive to Mr Wong are Cheung Kong Infrastructure Holdings, which gets half its income from electricity generator Hongkong Electric Holdings and is trading at a low price-earnings ratio of 13 times, and NWS Holdings, a port and infrastructure play that trades at 12 times.
'Everyone is looking at every little data point coming out and the difference between the consensus on that data before it happens and then what happens after that,' said David MacKenzie, a product manager for Asia excluding Japan at Schroders Investment Management (Hong Kong).
First up is next week's meeting of the US Federal Reserve which is largely expected to keep interest rates at their current levels. More important is the phrasing of comments from the Fed after that meeting to a market looking for reassurance. Investors also will be following closely the foreclosure rate and number of home sales in the US for an indication on where the country's economy is heading.
Mainland firms reporting earnings are another important bellwether. The general expectation is most earnings will come in fairly well - likely providing a much-needed boost to sentiment.
Some fund managers expect mainland financial stocks to be the first to hit bottom and recover when a rebound starts because they have already been hit so hard.