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SCMP Reporter

Hong Kong stock prices could come under downward pressure this week if the yen dips following the poor showing by Japan's ruling Liberal Democratic Party (LDP) in yesterday's upper house elections.

 Brokers said that regional stocks and currencies were also expected to take their cue from the election results, which would be fully out early this morning.

   A move lower by the Hong Kong market could be exacerbated by comments from a senior mainland official at the weekend that China would probably fail to meet its full-year growth target of 8 per cent.

 On Friday, the Hang Seng Index dived 228.01 points, or 2.7 per cent, to 8,205.77 points, undermined by a weaker yen, higher interbank interest rates and signs that property prices had yet to bottom.

 The tumble took the week's losses to 5.01 per cent.

 ImPac Asset Management analyst Kelvin Tang said: 'All of the focus will be on Japanese developments. People are worried about [Prime Minister Ryutaro] Hashimoto. People are very cautious.'  The Japanese polls were being seen as a vital test for Mr Hashimoto as he attempted to push through measures to snap the country out of recession - and throw a lifeline to embattled Asian markets.

 Analysts said that, as a minimum, the LDP had needed to hold on to its 61 seats to reassure financial markets.

 At stake were half the 252 seats in the parliament's upper house. Late last night it was expected to win fewer than 50.

   The poor showing could increase pressure on Mr Hashimoto to resign, possibly further delaying decisions needed to spur economic growth.

 The elections were the first for the upper house since Mr Hashimoto assumed the premiership in early 1996.

 Since then, the economy has deteriorated substantially, casting a cloud over prospects for a regional recovery.

 Of the prospects for the Hang Seng Index, one research head said: 'I think it will continue to test lower. We could see 8,000 points. There remain a number of uncertainties: the yen . . . and the liquidity problem.'  Last week, the Japanese currency finished at 141.28 yen to the US dollar, off a low of 141.73.

 A weaker yen would raise the spectre of further currency volatility, pushing up interbank rates.

 Brokers said the market could also react negatively to comments in the mainland from Zeng Peiyan, minister of the State Development Planning Commission, that questioned the strength of the mainland economy.

  'Economic growth is estimated at 7 per cent during the January-June period, and it will be a formidable challenge for the country to reach the 8 per cent goal for the whole year,' he told the China Daily.

 Economists have said Beijing needs gross domestic product growth of about 8 per cent to stave off the threat of social disruption as it restructures its economy.

 One broker said there were 'so many bearish factors in the [Hong Kong] market . . . I think it will test below 8,000 points early on.' KEY FIGURES Week's close: 8,205.77 (-433.54) Turnover (daily avg): $3.5 bln Vol (daily avg): 1.92 bln shares Week's high: 8,668.71 Week's low: 8,129.56 July futures: 8,190 (-430) August futures: 8,160 (-470) 



Asia looks to Japan election results as Hashimoto reforms hang in balance