HSI may fall 4pc before rebound

PUBLISHED : Monday, 13 August, 2007, 12:00am
UPDATED : Monday, 13 August, 2007, 12:00am

Markets to stay volatile after cash injections

The main measure of Hong Kong shares, the Hang Seng Index, is expected to open lower today and could retreat by another 4 per cent or so this week, warned Paul Pong, the managing director of Pegasus Fund Managers.

After closing at 21,792.71 on Friday, the index may fall to as low as 21,000 before any significant rebound occurs, Mr Pong said.

'The index will not show a significant rebound unless it falls to 21,000. So investors should hold more cash now,' he said, adding that global stock markets would continue to suffer aftershocks of concerns over defaults in the United States' subprime mortgage markets and this could continue rippling through markets in the Asia-Pacific region.

'The Hang Seng Index will remain volatile at around 21,500 in the short term,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities. 'Fortunately, we do not see money outflows from the Asia-Pacific region and there will be increasing money supply to the Hong Kong stock market soon from the mainland's qualified domestic institutional investor programme.'

The QDII programme was set up last year to give mainland investors access to overseas financial markets.

The Hang Seng Index fell 2.88 per cent on Friday. The market closed early due to the hoisting of typhoon signal No8. The government and the Hong Kong Monetary Authority indicated they would closely monitor trade performance.

Central banks in North America, Europe and Asia pumped massive amounts into the global financial system last week, injecting about US$323.3 billion over 48 hours on Thursday and Friday so as to increase market liquidity.

On Friday, the Dow Jones Industrial Average fell as much as 213 points in the morning but clawed this back by midday after the US Federal Reserve injected US$38 billion into the financial market. The Dow ended down 31.14 points or 0.23 per cent at 13,239.54, while the Nasdaq Composite Index was down 11.6 points or 0.45 per cent at 2,544.89.

The European Central Bank pumped Euro94.8 billion (HK$1.01 trillion) into the market on Thursday and Euro61 billion on Friday.

Stock markets did not react positively to the injection. Britain's FTSE-100 fell 232.9 points or 3.71 per cent, while France's CAC 40 fell 176.15 points or 3.13 per cent, on Friday. Germany's DAX 30 fell 110.33 points or 1.48 per cent.

The move by the Fed and the ECB have not helped confidence heading into this week.

'The move by major central banks also implied that the subprime mortgage crisis is affecting financial markets in different parts of the world,' said Eugene Law, head of research at Celestial Asia Securities Holdings.

So far, the Hong Kong Monetary Authority has not seen any urgent need to inject money into the local banking system.

HSI Services, which compiles Hong Kong's stock indices, will publish a quarterly review of the stock benchmark today.

Bank of Communications - partly owned by HSBC Holdings - and China Overseas Land & Investment, a developer controlled by the mainland's construction ministry, were expected to be added into the benchmark for a total of 41 stocks, said Nomura Holdings.

Holding back

Hong Kong has not yet felt the need to inject cash into the market

Amount that banks worldwide pumped into markets over two days, in US$323b