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SCMP Reporter

The market giveth and the market taketh away as Hong Kong investors yesterday followed Wall Street in pooh-poohing the marriage of Hewlett-Packard and Compaq Computer Corp.

The Hang Seng Index slid 1.73 per cent to 10,943.14 points on a thin turnover of HK$5.71 billion.

'The market overreacted [on Tuesday] to the news because it's desperately looking for positive news for a rebound,' KGI Asia director Ben Kwong Man-bun said.

News of the US$20.3 billion merger deal between two of the leading United States technology companies lit up global markets on Tuesday with only Wall Street, closed for the Labour Day holiday on Monday, missing out on giving its vote.

Wall Street's opinion - given on Tuesday - was a resounding thumbs down as the market perceived the move as an act of desperation and queried the logistics of such a tie-up.

The Dow Jones Industrial Average did, however, end the session in positive territory on the back of the July National Association of Purchasing Management Index, which showed a better than expected rise and suggested that a US recovery could come sooner rather than later.

Hong Kong investors, however, failed to absorb the optimism of their US counterparts.

'Even with this positive news, we didn't react. It's just a reflection of the very bad sentiment at the present time,' Dao Heng Securities deputy research head Eric Yuen said.

Mr Kwong said the latest data simply reflected a pick-up in the manufacturing sector rather than the broader economy.

'There's no doubt that manufacturing is improving and it seems that the worst is over but now [the problem] is not on the manufacturing side but on the consumption side,' he said.

Mr Kwong said he expected the latest employment figures - expected tomorrow - to further reflect the rising tide of cut-backs in corporate America and that this would affect consumption.

Unemployment data for last month is expected to tick up to 4.6 per cent from July's 4.5 per cent, according to a Reuters poll of economists, while the most recent measure of US consumer confidence showed a sharp fall last month.

While most of the main blue chips fell, Pacific Century CyberWorks bucked the trend by rising 4.67 per cent to HK$1.79, bringing the gains of the past two days to 9.81 per cent.

In a note to clients, Sun Hung Kai Financial Group analyst Florence Cheung said that while payments on CyberWorks' net debt of $48.9 billion were covered by the revenues generated by fixed-line services, the company was constrained by the overhang from investing and upgrading its existing network and services.

Ms Cheung maintained her sell recommendation on the company - whose interims are out today - on the basis that her $1.89 sum-of-the-parts valuation deserved a 15 per cent discount.

China Everbright was another notable gainer, climbing 6.32 per cent to $4.625 despite posting a 51.39 per cent drop in net earnings for the first six months of this year on Tuesday.

GK Goh analyst Stephen Chan maintained the stock was attractive despite a 0.28 per cent holding in troubled mainland cellular operator China Mobile.

While Mr Chan said Everbright's recent price decline was led by its China Mobile investment, he said this was overdone because for every $1 that China Mobile had fallen, only 2.5 cents were knocked off Everbright's fair value.

'It's not that much so for the past few days people have been overreacting to the impact of China Mobile on Everbright,' he said.

According to Mr Chan, Everbright's fair value per share stands at $4.98.

At this summer's Beidaihe beach retreat, Chinese government leaders dropped the idea of allowing mainland capital to be invested in Hong Kong markets on the basis that it was too early to consider the idea.

Illegal cash flows from the mainland added to a bull run in China-related stocks earlier this year.

davidw@scmp.com

Key Figures

Close: 10,943.14 (- 193.72)

Turnover: $5.71 bln

Volume: 4.35 bln shares

Day's high: 11,053.65

Day's low: 10,859.75

Advanced: 210

Declined: 303

Unchanged: 505

September futures: 10,913 (- 262)

October futures: 10,922 (- 255)



HSI drops as cheers turn to jeers over link-up between HP and Compaq