Rising market tide is ideal for floats
World stock markets powered to their biggest weekly gains in more than two years when trading ended on Friday, and the attention of investors and traders swings to the opening of Asian markets today to see if the rally will continue.
In Hong Kong, the backers of up to 14 new share floats waiting in a listing queue - among them jewellery-maker Chow Tai Fook and securities brokerage Haitong - will be hoping for an extended boost to market sentiment.
Driving global share prices higher was data released on Friday that showed a fall in unemployment in the United States, easing fears about the world's biggest economy; while optimism mounted in Europe on a deal ending the crisis.
'The November US job data will provide just a bit of help in sentiment for the Hong Kong and China stock markets,' said Kenny Tang Sing-hing, general manager of AMTD Financial Planning. However, Tang pointed out that the decrease in the US jobless rate was partly due to over 300,000 Americans giving up their search for employment.
Despite the caution over the US data, Tang said market sentiment in Hong Kong had been lifted by the move by the People's Bank of China (PBOC) to lower banks' reserve ratio requirement by 50 basis points.
A major cause of the generally poor performance of the Hong Kong and mainland stock markets in the past months has been tight liquidity on the mainland, which would be eased by the cut, Tang said.
The co-ordinated action of several other central banks to ease liquidity also helped lift all boats last week. The change in sentiment could not have come at a better time for Chow Tai Fook Jewellery. The offering, which could be Hong Kong's biggest this year, raising up to HK$22 billion. Shares are due to begin trading on December 15.
It has set a price range of HK$15 to HK$21 a share, according to the prospectus released yesterday.
Chow Tai Fook's IPO should not soak up too much liquidity from the market, Tang said, thanks to the cut in reserve ratio that has freed up more cash.
Though Tang was optimistic about the impact of the US jobs data on investor sentiment in Hong Kong, some other analysts were less so.
The data was 'hardly a bullish sign', said Charles Dumas, chairman of Lombard Street Research, a London think tank, in a report. Lombard Street Research predicts a hard landing for the US economy in the first quarter next year, pushing up unemployment.
Xiao Geng, research director of the Fung Global Institute, a Hong Kong think tank, said the drop in US unemployment numbers in November 'is good news in the sense that the US economy is stabilising. This means the export sector of China and Hong Kong have less to worry about.' But Xiao said investors were less focused on the US and more worried about the euro-zone crisis.
Michael Pettis, associate professor of finance at the Guanghua School of Management at Peking University, said the PBOC rate cut and simultaneous reduction in US dollar swap rates by several other central banks would provide a temporary boost to markets at best.
'Every time central banks loosen up, the markets go crazy for a few days and go down again. Over the next three to five years, I see little growth from the US and Europe.
'With unemployment still high in the US, it's going to be hard to see growth there. Europe is in crisis. China's imbalances have grown worse in the past few years. The global imbalances that led to the crisis of 2008 haven't gone away yet.'
Pettis said the PBOC's rate cut would not significantly improve the economies of Hong Kong and the mainland and neither would it increase liquidity substantially. It rather reflected an increase in capital outflows from the mainland because the reserve ratio requirement was used to maintain the fixed yuan exchange rate.
The year Chow Tai Fook opened its first outlet in Beijing. Twelve years later, the jeweller had more than 1,400 stores in 260 Chinese cities