HSI drifts down as revival of US inflation fears adds to worries

PUBLISHED : Saturday, 18 May, 1996, 12:00am
UPDATED : Saturday, 18 May, 1996, 12:00am

Hong Kong stocks drifted lower in sluggish trade yesterday, as fears of higher interest rates and the looming Sino-US trade war kept investors on the sidelines.

Stronger-than-expected housing start figures from the United States released on Thursday boosted US bond yields, as they showed inflation might not be as dormant as many believed.

This led to selling on Wall Street and added to the worries of Hong Kong investors, many of whom were already concerned about the threatened US sanctions against China.

The Hang Seng Index closed 16.56 points down at 10,816.85, a loss of 0.15 per cent. At one stage it had been 37.53 points up.

Turnover was light at $2.97 billion, the second lowest level so far this year and down from the revised $3.04 billion for Thursday.

Kent Rossiter, senior institutional sales manager at Nikko Securities, said: 'It was a slow day. The long bond yields started changing direction again and that worried people here.' Yields on US 30-year Treasury bonds rose sharply on Thursday after a government report showed housing starts in April rose 5.9 per cent, against an expected 0.8 per cent decline.

This put pressure on stocks, as it fuelled fears the US Federal Reserve might move to raise interest rates sooner than expected.

Many people are using the uncertainty about interest rates as a reason to stay out of the market.

Gary Ting, investment director at ImPac Asset Management, said: 'Investors are waiting for further indications about inflation from the US.' Brokers said threatened US sanctions against China, which would hurt many Hong Kong firms, created nervousness but did not generate major selling.

Among the 33 Hang Seng Index stocks, 13 advanced, five closed unchanged, and 15 went backwards.

Banks hurt the index the most, as they suffered from the threat of higher interest rates and from the lingering mortgage war.

The Hang Seng finance sub-index lost 0.7 per cent to 10,012.36. HSBC led the market in net loss, dropping $1 to $112. Hang Seng Bank fell 50 cents to $78.50.

Utilities were stronger, as investors sought out the defensive stocks. The Hang Seng utilities sub-index gained 0.28 per cent to 10,583.47.

Stephen Doe, regional research analyst at HG Asia, said: 'The utilities have been quite a good market recently. That reflects the fact people are not that positive about Hong Kong.' Among utilities to gain, Hongkong Electric added 25 cents to $24.50, and Hongkong & China Gas climbed 15 cents to $12.15.

A few smaller counters attracted attention, with Orient Telecom & Technology heavily traded following its announcement it would distribute assets to shareholders.

Orient gained 10 cents, or 2.73 per cent, to $3.75 after news that it would distribute the 500 million shares it owns in Thai-listed TelecomAsia.

Brokers see the index drifting lower next week as the trade dispute continues to overhang the market.