Rescue buys valuable time, HK analysts say

PUBLISHED : Sunday, 05 October, 2008, 12:00am
UPDATED : Sunday, 05 October, 2008, 12:00am

Analysts in Hong Kong say the US Congress' bailout plan will have only a short-term effect and that more hurdles need to be cleared before confidence in financial markets is fully restored.

'The rescue package will at least avoid market confidence deteriorating further,' said Daniel Chan Po-ming, a senior investment strategist at DBS Bank (Hong Kong).

Mr Chan said troubled US financial institutions were now able to buy time to solve their difficulties instead of being forced to sell assets cheaply. However, he said, there was no quick fix. 'The crisis is stemming from the subprime issue and has already affected the economy, so how to stabilise property prices is crucial,' Mr Chan said.

Stanley Wong Yuen-fai, an executive director at ICBC (Asia), said: 'I think further measures will be introduced by the US government, such as an interest rate cut or a further liquidity injection.'

Mr Wong said it was difficult to predict the bailout's effectiveness, as 'we haven't seen an overwhelming response in the US market'.

Louis Tse Ming-kwong, a director at VC Brokerage, said the bailout would not have too much impact on the Hong Kong stock market, as it had been widely expected. He said dealers would keep an eye on China's stock market, which would resume trading tomorrow after the National Day 'golden week' holiday. 'Markets are also waiting to see whether the mainland government will have other measures to stimulate the economy,' Mr Tse said.

Some analysts said they expected the Hang Seng Index, which closed at 17,682.4 on Friday, to have a 'neutral' response to the bailout plan. Mr Tse said the index might open slightly lower tomorrow as people were concerned about the US economy's health and its impact on the rest of the world.

The Dow Jones Industrial Average rose 1.48 per cent before the bailout plan was approved, but fell 1.5 per cent, to close at 10,325.38 on Friday.