Markets' bad week gets worse

The Hang Seng Index seems to be headed for its worst week this year, plunging for a fourth consecutive day, while US stocks tumbled again and entered bear market territory yesterday as European officials postponed a vital aid payment to Greece.

The Hang Seng Index has lost 9.78 per cent since Thursday last week and 27.41 per cent so far this year.

Markets in Asia fell again yesterday after reports European officials were not keen to raise the regional bailout fund's financing capacity.

Reuters quoted European Central Bank member Christian Noyer as saying on Monday that it was unrealistic to expect an increase in Europe's bailout fund beyond what was agreed in July. Investors were hoping that the Euro440 billion (HK$4.56 trillion) European Financial Stability Facility (EFSF) would widen its scope to make loans, help recapitalise banks and buy government debt in the secondary market.

The US and European markets closed down on Monday and continued to extend their losses yesterday.

Germany's DAX was down over 4 per cent while Spain's IBEX 35 was down nearly 3 per cent. In the US, both the Dow Jones industrial average and the Standard & Poor's 500 Index were down about 2 per cent in the early hours of trading yesterday. The S&P Index fell 21 per cent below its April 29 high of 1,363, meeting the criteria of a bear market.

In Asia, the key Taiwan stock index gained just 0.48 per cent while South Korea fell 3.59 per cent, Japan was down 1.05 per cent and Australia dipped 0.64 per cent.

As the Hang Seng took another dive, it reached a 52-week low of 16,170.3 points before closing down 3.4 per cent, or 571.88 points, at 16,250.27. All but four of the constituent stocks in the 46-member index fell yesterday. Stocks in the resources sector saw a sell-off.

China National Offshore Oil Corporation (CNOOC) fell 6.74 per cent to close at HK$11.34 - its lowest close in more than a year. China Coal Energy lost 5.85 per cent while its larger rival, China Shenhua Energy, fell 4.68 per cent.

Sentiment has been bearish on Hong Kong stocks and short selling has returned to the levels seen in the 2008 global financial crisis, according to statistics from the Securities and Futures Commission.

The latest report published by the securities regulator says the average daily short-selling turnover last week was HK$9.3 billion, or 11.8 per cent of the total market turnover, compared with HK$5.4 billion, or 8.5 per cent of total turnover between July 2 and September 19, 2008.

Short selling involves borrowing shares, selling them and buying them back later at a lower price, a practice that has been blamed for roiling markets. Belgium, France, Italy and Spain have imposed restrictions on short selling to curb wild swings in stocks. Korean regulators have had a three-month short-selling ban in place since August.

Although brokers in Hong Kong are worried about the high level of short selling, some analysts believe banning the practice might not help.

'Stocks are falling in Europe even though short selling has been banned,' said Patrick Yiu Ho-yin, managing director of Cash Asset Management. 'For Hong Kong, it's not just fears of recession and European debt problems. People are also bearish about China's growth, fearing a hard landing. Even if short selling is banned here, it will be of very little help to the stock market.'