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Stephen Seawright

Mainland-related plays outperformed the Hang Seng Index yesterday, as retail investors increased buying and as institutions invested more funds outside the blue-chip market.

 Red chips and H shares together accounted for nearly 20 per cent of the overall market turnover.

 Recently, they accounted for about 15 per cent of trade, according to Core Pacific-Yamaichi sales director Terry Cheung.

 Blue chips took 60 per cent of turnover, compared with 65 to 70 per cent usually.

 The red-chip index yesterday rose 5.39 per cent to 932.73 points, while the H-share index gained 4.65 per cent to 423.62 points.

 The Hang Seng Index added 2.21 per cent to 12,766.44 points.

 The price gains were mostly liquidity-driven without any economic or company news to justify the rises.

 Container leasing business Cosco Pacific was the largest red-chip gainer yesterday, with a rise of 22.4 per cent to $5.60.

 Analysts said the company had been oversold.

 'The rally [in Cosco] is not unreasonable because it is one of the few companies that would benefit immediately from [World Trade Organisation] membership,' an analyst said.

 While the United States and the mainland failed to come to a WTO agreement during a visit to Washington by Premier Zhu Rongji this month, hopes were raised for an accord later this year, brokers said.

 Founder soared in early trading before closing only 3.5 per cent firmer at $1.18.

 Brokers said trading in the company was evidence of retail investors taking advantage of intraday price movements.

 'The punters are back,' a broker said. 'Traditionally small-caps and red chips are their favourites.'  Most analysts said they believed valuations of red-chip companies were not justified on a fundamental basis.

  'The valuation is stretched because we haven't seen a major turnaround in the companies' financial positions,' South China Securities red-chip analyst Kelvin Ng said.

 Retail players were also seen buying up middle-cap stocks, particularly second-tier property companies, ahead of the Government's land auction today, brokers said.

 Kerry Properties gained 18.67 per cent to close at $9.85.

 Shun Tak Holdings put on 8.8 per cent to settle the day at $2.10.

 Retail investors were also seen to be entering the warrants market in a much larger way yesterday, according to brokers.

 'Volume-wise, the most active warrants were red chips,' a broker said.

 The market's focus had also turned away from put warrants and to call warrants, brokers said.

 Investors holding put warrants lost out as the stock strengthened, they said.

 'Many of them were so badly burnt with puts as the market went through 10,000, 11,000 and 12,000 that they finally decide to go with the momentum of the market [and take call warrants],' one broker said.



China-linked counters outperform blue chips