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Stephen Seawright

China Telecom overtook HSBC to become the largest company in Hong Kong's stock market yesterday after its shares soared 13.2 per cent on its expected inclusion in Morgan Stanley Capital International (MSCI) indices.

 At yesterday's record closing price of $60, China Telecom had a market capitalisation of $822.37 billion, up $95.94 billion from the end of last week.

 HSBC's market capitalisation at yesterday's close was $752.76 billion after the counter fell 2.46 per cent to $89.

 China Telecom was bolstered by the possibility the company would be added to MSCI indices, which are widely used by fund managers to assess their portfolios.

 The counter has risen since the MSCI announced last month it was reviewing the constituents of its China Free Index.

 'It's just continuing on the same trends of possible MSCI inclusion which is going to be a big driver,' Jardine Fleming regional telecommunications analyst Jake Lynch said.

 'People don't reallocate their portfolios in one day - this is an ongoing process for a number of months,' he said.

 Some analysts said the stock was also driven up by the takeover of German cellular operator Mannesmann by Vodafone AirTouch - the largest ever such merger - last week.

 The deal drew investors' attention to the increase in valuations of cellular operators globally over the past few months.

 'The valuations of cellular companies have been going up and therefore the benchmarks that China Telecom is measured against have been rising,' said a telecoms analyst at a US investment house.

 The future sale of the British cellular operator Orange as part of the Vodafone-Mannesmann deal has also led to greater interest in cellular stock valuations such as China Telecom.

  Orange is valued at about GBP35 billion (HK$432.76 billion), according to the telecoms analyst, compared to GBP19.8 billion when Hutchison Whampoa sold its stake in the company last October.

  Most analysts expect China Telecom's share price to continue rising on the back of further earnings and subscriber growth despite its 125 per cent appreciation since the start of November.

  However, some analysts doubt subscriber growth will be as strong as the market expects.

 'At some point people are going to be very disappointed - the new subscribers can't come through as expected,' the telecoms analyst at a US house said.

 China Telecom's rise is another indication of how the Hang Seng Index is becoming less dominated by banks and property companies and more by telecom and technology firms.

 'While property counters and banking stocks have lagged behind, the focus has turned to telecom and technology stocks,' Core Pacific-Yamaichi research director Alex Tang Yee-yuk said.

 Mainland companies such as listing candidates China Unicom and petroleum giants China National Offshore Oil Corp and China National Petroleum Corp are also expected to dominate the Hang Seng Index.

 If admitted to the HSI the three new listings plus China Telecom would be expected to dominate the large cap companies.

 'These four companies could take 50-60 per cent of the total Hang Seng Index market cap,' Mr Tang said.

 HSBC's slip to the second largest firm on the stock market reflects the continued decline of the role of British hongs, brokers said.



China Telecom cap tops HSBC