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Cathy Holcombe

Hong Kong shares followed global markets downwards yesterday after fresh technology sector warnings, with poor results from Pacific Century CyberWorks greasing the slide.

The Hang Seng Index fell 173.52 points, or 1.35 per cent, to end at 12,677.89. Lead proxy plays HSBC and China Mobile together accounted for 96.03 points of the decline.

'At some point we are going to grow up and stop following Wall Street,' Prudential-Bache Securities strategist John Schofield said.

On Wednesday the Nasdaq Stock Market dived 5.99 per cent and the Dow Jones Industrial Average slid 1.63 per cent after Nortel Networks Corp and Palm warned of first-quarter losses.

Sentiment got no help locally after CyberWorks offered one of Hong Kong's biggest corporate losses on Tuesday.

The counter may be the only blue chip to fall into negative equity, leading to speculation that HSI Services would give it the boot.

The index compiler company, a subsidiary of Hang Seng Bank, was inundated with media queries on the matter yesterday.

'The financial results of [CyberWorks] at this stage would not affect the stock's position in the Hang Seng Index,' general manager Vincent Kwan Wing-shing said.

He said market capitalisation and turnover, sector representation and financial performance were the three main criteria for index eligibility.

After another drop yesterday, to HK$3.25, CyberWorks now has a weighting of 2.21 per cent on the index, compared with 9 per cent when it entered the index after taking over Cable & Wireless HKT in August last year.

Nomura International quantitative analyst Sandy Lee also expects that CyberWorks, as owner of Hong Kong's flagship telephone operator, will be safe as a key sector representative in the index.

'I don't know how they could select another to replace it,' she said.

Old economy stocks were not immune to the fallout, with Dah Sing Financial and Wing Hang Bank among the leading decliners.

Vickers Ballas banking analyst Patrick Ho said small banks such as Dah Sing had been outperformers this year, making them vulnerable targets for profit taking.

He said the banks still stood to gain on a margin basis from further United States interest-rate reductions.

Deposit rates tend to be set against the Hong Kong interbank offered rate, which often falls before US interest-rate cuts. While the prime lending rate is cut only after the US announces its moves, 'so you have a time lag in the fall in deposit costs and fall in interest rates and thus a better net margin if interest rates are falling', Mr Ho said.

H shares bucked the trend by rising 2.2 per cent yesterday.

'China is really the only good story left on the planet,' Mr Schofield said.

He said stocks trading on forward price-earnings ratios of the low teens or below were also candidates for bargain hunting.

Cathyholcombe@scmp.com



Poor CyberWorks results, tech earnings warnings fuel Hong Kong decline