bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

THE Hang Seng Index tumbled nearly 1,400 points in two days to close at 14,135.25 on Friday, mirroring the sell-off in other Asian stock markets.

 The pull-back, though sharp, represents a loss of only about 9 per cent and has yet to inflict widespread damage on the market.

 In terms of fundamentals, there is no need for concern. Unfortunately, this is of no interest to those who are leading the assault this time.

 Currency speculators and gyration on Wall Street have been cited as the triggers for the heavy selling in Hong Kong and elsewhere in Asia.

 Given Hong Kong's solid corporate and economic performance, however, a raid on the Hong Kong dollar is not justified.

 Riding on the momentum generated by successful sacking of the Thai baht, Philippine peso, Malaysian ringgit and Indonesian rupiah, it seems likely the raiders will regroup and return in greater force to try again on the Hong Kong dollar.

 This is despite of the solid support behind the value of the local currency. With US$82 billion foreign reserves in its coffers, and Beijing's reserves of $126 billion pledged as a backup, Hong Kong has ample ammunition to defend its currency.

 This, together with a healthy banking system, should fend off any attack on the currency. However, the stock market is paying the price for currency stability in the meantime.

 As for Wall Street, the market may be due for a correction, but there is no imminent risk of a plunge in share prices. The US economy is showing persistent strength; there is no inflationary pressure in sight to justify a rise in interest rates and corporate earnings prospects remain healthy.

 The reason for the unsettled Hong Kong equity market is not a worsening of corporate or economic data, but the proliferation of the influence of hedge funds and derivative traders in the currency and equity markets.

 Their strong presence at this point suggests there will be further downside for the Hang Seng Index. Nevertheless, the selling will continue to be concentrated on blue chips, leaving many of the star performing H shares, red chips and second liners unscathed.

 With the 15th Party Congress due to commence in less than two weeks, there is still no sign of enthusiastic local and mainland funds retreating from H shares and red chips.

 There has been no deterioration in the economic and corporate fundamentals. Unfortunately, the market is not being ruled by fundamentals at the moment.

Eugene Law is research director at Lippo Securities 



Equity pays 1,400-point penalty for stability of the dollar