Blue chips languished once more as investors questioned whether they would get improved returns even if the economy finally turned the corner. The Hang Seng Index fell 26.43 points or 0.24 per cent to close at 10,836.64. Turnover was a thin HK$5.06 billion. While a recovery was being factored into other Asian markets, it was not in Hong Kong, said Ian McLennan, the regional strategist for UBS Warburg, adding there were concerns structural adjustments to the economy would outweigh benefits of a cyclical upturn. 'Investors are sceptical that stocks can deliver growth to you,' he said. 'The jury has reached the verdict before seeing the evidence of what happens over the next six or nine months. I think people may be somewhat surprised.' Smaller banks and selected property firms such as Swire Pacific and Wharf looked cheap relative to growth prospects which would emerge from a pick-up in trade and the financial services industry, Mr McLennan said. With the blue chips remaining consigned to the dunce corner, the search for growth took investors back to China's entrepreneurial companies or private chips as fears about corporate governance were overcome. Celestial Asia Securities research head Herbert Lau Chung-kwan said: 'Everybody thought the worst is over and we were going to see some good results.' Orchid farmer Euro-Asia Agricultural, which had been sold down heavily in January on fears of a clash with its major shareholder's other businesses, jumped 6.11 per cent to $1.91. The key to the private chip story was that the interests of management and shareholders were closely aligned, said Joe Zhang Huaqiao, the UBS Warburg analyst who compiled a sector index. 'Investors and analysts have done more due diligence on them and have reaffirmed their belief in most of these companies,' Mr Zhang said. Despite the rally, bus shelter advertising firm Clear Media fell 7.77 per cent to $4.15 as investors worried it was overvalued after being floated at $5.89 or 57 times earnings. But, in Mr Zhang's view, it was now looking a reasonable prospect with a discounted cash-flow valuation of $5.01. The firm had already got through its heavy investment phase and was ready to benefit from tying up exclusive deals in big mainland cities, he said. Although not a private chip, consumer electronics firm TCL International joined the rally, rising 6.04 per cent to $1.58. 'It seems like the price war is history,' said Mr Lau, referring to the firm's core television business. Meanwhile, the firm's diversification into mobile telephones was bringing higher margins. New World Development slid 2.29 per cent to close at $6.40 as investors digested its results and opted to switch into rivals Swire and Wharf. 'They keep making losses in non-core business. They could only make a profit by selling a quality asset,' Mr Lau said, referring to the Regent hotel. Jonogden@scmp.com Key Figures Close: 10,836.64 (- 26.43) Turnover: $5.06 bln Volume:4.82 bln shares Day's high: 10,867.02 Day's low: 10,785.62 Advanced: 293 Declined: 407 Unchanged: 444 March futures: 10,811 (- 51) April futures: 10,800 (- 60)
