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SCMP Reporter

Hong Kong stocks weakened yesterday after second-quarter earnings warnings sparked selling on Wall Street.

The Hang Seng Index finished 148.81 points, or 1.08 per cent, down at 13,526.68 on a healthy turnover of HK$11.94 billion.

'The performance of the blue chips was lacklustre - they traded in a very narrow range,' Core Pacific-Yamaichi Securities research head Alex Tang Yee-yuk said. 'We're taking our cues from Wall Street.'

More second-quarter profit warnings on Wall Street on Monday saw the Dow Jones Industrial Average fall 0.5 per cent while the Nasdaq Composite Index slid 2 per cent.

Hong Kong followed suit with HSBC leading the pack lower as it fell 2.3 per cent to $95.50, accounting for 76.82 points of the market's fall.

Analysts said the banking giant had been partly hit by the weakening British pound, which in recent days had fallen to 15-year lows against the US dollar. Yesterday the pound recovered slightly to stand at US$1.378 in late afternoon trade.

Nearly 30 per cent of HSBC's business comes from Britain.

Indosuez WI Carr analyst Richard Duncan said: 'It's not helping. It has a significant portion of its profits in pounds from the UK operations and the more the pound depreciates, translated into dollars which they show their accounts in, the less dollars they get.'

Mr Duncan, who has a sell recommendation on the bank, said currency weakening was just one of the problems HSBC faced.

'There's a whole series of risks confronting HSBC relating to the economic slowdown all over the world and it's not surprising that the share price should be dropping,' he said.

Mr Duncan said the threat of non-performing loans was the biggest risk facing HSBC, a risk exacerbated by the recent acquisition of Republic New York Bank.

US economy fears again hammered Johnson Electric, which fell 3.54 per cent to HK$12.25. The company, which slid 6.95 per cent on Monday, disappointed the market at the end of last week with its full-year results.

In a report downgrading the company from a buy to a hold, SG Securities analyst Paul Snelgrove noted US sales in the company's core vehicle business grew just 1 per cent in the second half, year on year.

With sales for the first half of this year down an ominous 6 per cent, Mr Snelgrove said next year's price-earnings ratio of 32 times was unjustifiable.

Monday's profit warnings from three US semiconductor and semiconductor equipment stocks came home to roost as Hong Kong's two semiconductor counters ended sharply lower.

ASM Pacific tumbled 3.79 per cent to $15.20 while QPL slid 3.89 per cent to $3.70.

Despite the difficulties facing semiconductor stocks, Mr Tang remained positive about the sector and market as a whole.

'I'm expecting a recovery in the semiconductor industry in the second half,' he said. 'With a series of interest rate cuts, I believe the US economy will see a sharp recovery towards the end of the year. Stock markets usually lead economic cycles so the blue chips should rally in the fourth quarter.'

Key Figures

Close: 13,526.68 (- 148.81)

Turnover: $11.94 bln

Volume: 15.57 bln shares

Day's high: 13,628.21

Day's low: 13,443.66

Advanced: 254

Declined: 465

Unchanged: 341

June futures: 13,590 (- 155)

July futures: 13,624 (- 166)



HSBC leads fall amid worries over impact of weakening pound on earnings