Year of Rat starts badly for stocks after G7 review
Nick Westra, Enoch Yiu and Wong Ka-chun
On the first trading day of the Year of the Rat, Hong Kong stocks hit the trap but not the cheese, as the benchmark fell to its lowest level in three weeks after the world's largest economies acknowledged looming threats to global markets.
The Hang Seng Index yesterday never gained its footing and slid from start to finish, closing 853.35 points or 3.64 per cent down at 22,616.11. It was the worst first-day performance by the blue-chip indicator in the past 12-year Chinese calendar cycle.
Skittish investors ran for cover after the Group of Seven leading industrialised countries released a statement at the end of their meeting at the weekend in Japan that said the world faced 'a more challenging and uncertain environment than when we met last October'.
Fears that global corporate earnings will deteriorate even further amid speculation of more bank write-downs and weakening consumer demand added to investors' jitters, which may make last year's market successes seem like a distant memory.
'The market still needs to see some actual data to show that the US or European markets have stabilised,' said Teresa Chow, a fund manager at RBC Investment Management Asia. 'Otherwise, sentiment will remain very cautious.'
While investors wait for good news, they should also brace for the bad because the US subprime crisis is not yet over, according to Secretary for Financial Services and the Treasury Chan Ka-keung.
'Amid a volatile market, investors should be cautious about their investment,' Mr Chan said yesterday after attending the ceremonial first trading day of the Year of the Rat at the Chinese Gold & Silver Exchange Society.
Around the rest of the region, South Korea plummeted 3.3 per cent, Indonesia dropped 1.88 per cent and Malaysia shed 0.61 per cent. The region's two largest markets, Japan and China, were shut for public holidays.
Hong Kong's market reopened yesterday after being closed for the second half of last week.
Some investors noted that trading in the local market had been especially thin since before the Lunar New Year holiday last week and speculated that this could signal that a prolonged slump lay ahead.
'With thin volume, that means many investors are hanging on to stocks and that means many investors are not panic-selling, and that really worries me,' said Alex Tang Yee-yuk, the research director at Core Pacific-Yamaichi International.
'That means the market has a way to go down.'
In near-term trading, the market could trend further down and might even touch 20,000 or 21,000 points before staging a comeback, Mr Tang said.
Adding to gloomy predictions, rumours flew in the market that blue chips PCCW and Cheung Kong Infrastructure Holdings may be replaced by some mainland newcomers on the benchmark after the Hang Seng Index quarterly review on Friday.
However, other market participants said HSI Services, the manager of the benchmark, would continue its 'go slow' approach in expanding its index from 43 to 50 members before removing a constituent.
Shares of Cheung Kong Infrastructure, controlled by Li Ka-shing, slid 3.85 per cent to close at HK$28.75 yesterday in the wake of the rumours.
PCCW, Hong Kong's largest telephone company, dropped 1.57 per cent to finish at HK$4.38.