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SCMP Reporter

Hong Kong stocks surged to a record high close yesterday in expectation of mainland investment in local firms.

 News that Cosco Pacific planned to buy a 20 per cent stake in Liu Chong Hing Bank raised hopes that other firms would attract mainland partners.

 Hang Seng Bank jumped 4.2 per cent to $111.50 on hopes of mainland investment.

 China Light & Power was up more than 4 per cent on similar expectations.

 Nava SC Securities analyst John Schofield said sentiment had improved.

 'It's a bit like the weather; the sky clears, and everyone is bullish again.'  The Hang Seng Index rose 386.06 points to close at 15,225.29, easily surpassing the previous record close of 15,196.79 set on June 27.

 Red chips continued their rebound. The Hang Seng red-chip index rose 4.22 per cent to close the session at 3,319.45 points.

 China Merchants Holdings jumped 5.76 per cent to $22.

 South China Securities director Howard Gorges said investors were regaining confidence in mainland-related stocks following the recent round of anti-speculation measures emerging from Beijing.

 'Beijing will now use a lighter touch,' he predicted.

 The recently imposed limits on initial public offerings in Hong Kong by mainland companies were also a bonus, as they would control the supply of available red chips, he said.

 Most of the excitement was in local companies that are likely targets of mainland investment.

 Wing Hang Bank and Kwong On Bank each rose more than 8 per cent.

 Analysts have speculated that mainland firms are interested in taking stakes in Hong Kong banks in order to secure overseas credit lines and garner more sophisticated financial expertise. In return, the Hong Kong institutions would receive greater access to the growing mainland market.

 Property counters continued to regain some of their recent losses.

 Sun Hung Kai Properties and New World Development each advanced more than 3 per cent.

 The gains by property stocks leaves many analysts unimpressed, however.

 Sunny Chan, at Seapower Securities, said: 'Personally, I don't think it is a very healthy market.'  He pointed out that Cheung Kong had cut the price of units at its Vista Paradiso development, which goes on sale this weekend.

 The fact that turnover remained well below the levels seen prior to the handover was also a negative sign, Mr Chan said.

 'Participation has been diminished by the volatility of the market. People are taking a wait-and-see attitude,' he said.



Mainland offers new hope