Blue chips spent another day in the doldrums yesterday but at least on one valuation method they look like bargains. The Hang Seng Index rose 33.34 points, or 0.3 per cent, to 10,863.07 points with turnover remaining subdued at HK$5.95 billion. Joseph Tang, head of research at Sun Hung Kai Financial Group said: 'Hong Kong is the second cheapest it has been in the last 15 years. It is even cheaper than during the Gulf War but not as cheap as during the Asian financial crisis.' He figured that out by comparing the expected earnings yield of the Hang Seng Index against the risk free rate investors could obtain from short-term United States treasury bills. Factoring in a conservative 3 per cent risk premium, the index could hit 13,000 points by the end of the year, he said. If a risk premium of 2 per cent was used - the average of the last 15 years - the index should hit 16,000. Players were not so interested in theoretical valuations as digesting the mixed signals from fresh economic and corporate earnings data, said Phillip Securities research director Louis Wong Wai-kit. A rise in the index of core US inflation stoked new fears of higher interest rates which would have to be mirrored in Hong Kong due to its pegged currency. That is bad news for property developers which are still struggling to sell flats with lending rates at record lows. Property shares were also dogged by news that the Housing Society might be bidding for projects under the Urban Renewal Authority. Henderson Land was down 0.95 per cent to $31 and Cheung Kong was down 1.08 per cent to $68.25. Cheung Kong will see pre-exceptional net earnings decline in the next two years as Hutchison, which accounts for 77 per cent of its net asset value, suffers losses from its investments in third generation mobile phone operations, according to DBS Vickers Securities. Investors were also on edge about the two big Chinese telecommunications counters ahead of China Unicom's results due out on Wednesday. Conita Hung Lai-ping, head of research at Mansion House Securities said: 'The market is concerned about their [code division multiple access] services.' With only 9,000 new subscribers added last month, against 1.1 million for its global system for mobile, investors feared the new US-standard network launched at the start of this year might be a drag on earnings. Garment trading company Li & Fung rose 7.98 per cent to $11.50 helped by better than expected results which included a 32 per cent rise in turnover, Kenny Tang Sing-hing, associate director at Tung Tai Securities said. But with its price-earnings ratio at 30 times and its net interest margin at less than 3 per cent, the stock did not look a great investment at its present price, he said. Mainland vegetable producer Chaoda Modern Agriculture was also helped by good results, rising 8.24 per cent to $2.625. In contrast to Li & Fung, it looked cheap at seven times earnings with net margins a juicy 60 per cent. Mr Tang said: 'In the short term it may rise to $2.80.' New World Development's interim results were goosed by a one-off gain from the sale of the Regent Hotel helping the stock rise 3.15 per cent to $6.55. Under the bonnet of the results, however, it did not look so good, Mr Tang said, with income from rental properties falling by 21 per cent. Jonogden@scmp.com Key Figures Close: 10,863.07 (+ 33.34) Turnover: $5.95 bln Volume: 5.02 bln shares Day's high: 10,919.46 Day's low: 10,811.88 Advanced: 399 Declined: 295 Unchanged: 448 March futures: 10,862 (+ 10) April futures: 10,860 (+ 18)
