Representatives of the broking community believe Hong Kong's stock and futures markets will die a slow death if all the Government's proposed measures are fully implemented. 'In the short term, I think the objectives that they have [to wipe out short selling] are achievable,' ABN Amro strategist Eugene Galbraith said. 'It makes it very difficult for short sellers and arbitrageurs and that is the way the HKMA wants it. 'In the long term, these measures probably constrain the market, because you end up with a market that has less depth and liquidity.' Brokers said the clampdown on the futures and short-selling markets would shrink liquidity in the market by tying the hands of legitimate hedging, arbitrage and speculative activities. Such activities were one of the few providers of liquidity before the Government began buying stocks on August 14. Warburg Dillon Read's Asian banking research chief, Todd Martin, said: 'At the end of the day, whether you go long or short, the more liquidity you have on either way improves the actual pricing mechanism of assets. 'Prior to the HKMA's intervention, we were getting indications from some long-term funds that they were interested in taking some pretty hefty stakes . . . the benefit of having shorts is that the prices move more quickly to fundamental levels and you can end up with more liquidity for the stocks.' Smaller brokers were even more up in arms. Stock exchange council member and director of Hongkong Clearing Syed Bokhary said the Government's actions would 'destroy the local stock market'. He said in his personal capacity that the strict implementation of the two-day deadline for clearing trades (the T+2 rule) was practically impossible for orders from many foreigner investors. 'The new suggestions [of the Government] would drive the foreign investors away,' he said. 'It would destroy the local stock market.' Another director of the clearing house, Stephen Hui Chiu-chung, said he believed strict enforcement of the T+2 rule would not be an insurmountable burden, because the majority of Hong Kong stocks were deposited in the SAR. Hong Kong's property magnates - who have most to gain from lower interest rates and a revived stock market - expressed wide support for the Government's package. Sun Hung Kai Properties vice-chairman and managing director Raymond Kwok Ping-luen said: 'The new measures will help restore stability and order to the financial and currency markets.' Sino Land chairman Robert Ng Chee Siong said the economy and the property sector would 'definitely' see an improvement following the launch of the new package - proof of which he said was reflected in yesterday's 7.86 per cent rise in the stock market. Some said home-buyers were afraid to enter the market when interest rates fluctuated violently and that investors veered away from developer stocks, which provided more weighting to the market than any other sector. Those in support of the measures focused largely on the benefits of reducing interest rate volatility. 'If it works and keeps markets more stable, it's good for banks,' international rating agency Fitch IBCA managing director David Marshall said.
