Obuchi pledge lifts index

Hong Kong share prices rose nearly 1 per cent yesterday in a surprise late-afternoon rally after Japanese Foreign Minister Keizo Obuchi was selected as the new head of the ruling Liberal Democratic Party, brokers said.

The Hang Seng Index rose 81.21 points to 8,257.46, off a low of 8,018.89 as the market awaited news of who was to become Japan's next prime minister on July 30.

Bargain hunting in red chips, which rebounded 5.76 per cent to 772.87 points after seven days of losses, also boosted share prices.

Analysts had predicted Mr Obuchi's victory would spook the markets, as he was thought to be less reform-minded than the other two candidates.

However, his wide margin of victory, swift promise of reforms and the likelihood that market-friendly rival Seiroku Kajiyama would become finance minister helped to fuel the gains.

Although the yen weakened momentarily when Mr Obuchi's victory was announced, it quickly recouped its losses, helping many regional markets off their lows.

'Obuchi's election was in line with market expectations,' BNP Prime Peregrine sales director Samson Chau Chi-wai said.

'I think the market had discounted the bad news . . . and then the yen rebounded.' The leadership contest, sparked by Ryutaro Hashimoto's July 13 resignation, had been seen as crucial, with markets focusing on Tokyo's attempts to pull the country - and much of the rest of Asia - out of recession.

Yesterday's gains helped pare the blue-chip index's loss for the week to 4.3 per cent, snapping two weeks of gains.

Mr Chau said buying momentum was also boosted by bargain hunting in red chips, which have lost more than 10 per cent in the first four days of trading this week as investors bailed out of the sinking sector.

The H-share index yesterday rose 1.16 per cent to 367.76 points, but losses for the week stand at 10.76 per cent.

Dharmala Securities head of research Ben Kwong Man-bun said: 'Red chips have been quite heavily oversold in the past few weeks, mainly because of the concern of the possibility of devaluation [in the yuan] and also concern about the Chinese economy not being able to achieve its target 8 per cent growth.' The market has also been unhappy with the prices of recent asset acquisitions.

'Foreign investors are no longer willing to [pay] a premium for red chips,' said Mr Kwong. 'I think they're reasonably priced these days, especially for those window companies . . . whose earnings [as conglomerates] are diversified.' The blue-chip index's top gainer was red chip Shanghai Industrial, which rose 5.75 per cent to $14.70.

Analysts said long-term buyers were willing to wade into the sector following drastic losses of 22.49 per cent in the past month - against a 0.47 per cent fall in blue chips - and 49.87 per cent in the past three months.

KEY FIGURES Close: 8,257.46 (+ 81.21) Turnover: $4.3 bln Volume: 2.77 bln shares Day's high: 8,302.84 Day's low: 8,018.89 Advanced: 278 Declined: 218 Unchanged: 480 July futures: 8,340 (+ 195) August futures: 8,320 (+ 215)