WITH the second round of the Sino-British talks starting today, investors yesterday capitalised on the market's recent robust performance to take profits, reversing an early rally to send the Hang Seng Index down 8.87 points to 6,836.88. However, there weremixed signals. The index reached an intra-day high of 6,899.85 shortly after the opening bell but closed at a 26.88-point premium to the May index future contract. Kleinwort Benson Securities salesman Tony Edwards said the market was still bullish with 7,000 points the first resistance level but investors were nervous about the Sino-British discussions in Beijing about Hongkong's political reforms. After the talks tomorrow, Mr Edwards said, the market should go through a cooling down period with political rhetoric less of a factor. Dao Heng Securities research director Alex Tang said the index had jumped 38 per cent over the past four months. He said the profit-taking now taking placing was not surprising because the index was 16 per cent above the 20-day moving average. The market opened on a strong note, gaining 54.1 points to 6,899.85 after the first 15 minutes, with investors taking note of the strong performance by many Hongkong counters in London. Brokers said profit-taking then dominated the rest of the morning with the index losing nearly all the earlier gains, falling to 6,848.67 by lunchtime. During the afternoon trading session, the index fell to a low of 6,821.92 with HSBC the main culprit. HSBC took 14.41 points off the index with a loss of $1 to $72.50. A broker said the implied volatility of May options at-the-money straddle rose to 31.81 per cent as investors appeared to be preparing for a drop related to expected cash calls from rumoured new issues. Meanwhile, the surge in the price and trading volume of many second and third-line stocks has led to a flurry of announcements from six companies saying they are unaware of any reason for the increases. Among the companies affected yesterday: Paragon: It climbed 1.7 cents to 10.6 cents yesterday. The stock has jumped 92.7 per cent since April 14. Laws Property: It fell 32.5 cents to $4.825 but it is still up 44 per cent since April 14. China Overseas: Its price was unchanged at $1.53, which is up 17.6 per cent since April 14. Chee Shing: It rose 13 cents to $1.17, lifting its gains to 29.2 per cent since April 14. Herald: It lost eight cents to $1.21, narrowing its advance to a modest 9.4 per cent jump since April 14. Ocean Information: It eased two cents to $1.84. Since April 14 it has gained 36.2 per cent. Cheung Kong continued to attract investors with the day's second heaviest turnover of $253.91 million, accounting for five per cent of the market turnover of $5.06 billion. The stock ended unchanged at $25.90 after hitting $26.40. Cathay Pacific Airways climbed a further 3.8 per cent, 40 cents, to $10.70 with the heaviest turnover of $263.27 million. Brokers said the stock had been buoyed by a local newspaper report about its participation in an aviation joint venture in Wuhan, Hubei province. There was also positive investor response to Hopewell's statement that it might seek a separate listing for its electric power generation operations in China and the Philippines. The stock rose 10 cents to $5.10 on a turnover of $141.62 million. While many second and third-line counters eased off yesterday, growing investor interest in them was still evident. China Overseas was heavily traded, with 44.1 million shares changing hands. But the stock closed unchanged at $1.53. Mr Tang said the company had become popular because it was strong fundamentally, with good cash flow and a sufficient land bank to support its development plans over the next couple of years. Conic Investment, which announced last week it was in negotiations with a third party that could lead to a takeover offer, jumped 20 per cent, 45 cents, to $2.70 on a modest turnover of $4.79 million. Paragon soared 19.1 per cent or 1.7 cents to 10.6 cents on rumours of a share placement. Many of the construction counters that posted strong gains on Monday on speculation an agreement might be reached on financing Chek Lap Kok airport retreated yesterday. B+B Asia fell 6.7 per cent, 30 cents, to $4.15, while K. Wah International shed 17.5 cents to $2.425.
