The new share offer launched to back Standard Chartered's Hong Kong listing triggered a 'switching' play by investors when trading in the bank's stock began on the London market yesterday. 'Investors who can buy into the Hong Kong listing were likely to have been taking profits in London with a view to putting some money into the local offer,' Fox-Pitt, Kelton's Hong Kong-based analyst Sunil Garg said. The strategy of selling in London to reinvest later in the new Hong Kong share offer saw a wave of sell orders take the Standard Chartered share price down 20 pence, or 2.7 per cent, from Friday's close to 734 pence (HK$88.45) within an hour of trade opening. The retreat came as rival bank stocks all made modest gains. By the close yesterday, the share had recovered to 744 pence, down 1.32 per cent. The response from investors was to be expected, analysts said, since the share had made strong gains last week, rising 13 per cent to the Friday close of 754 pence. The challenge posed to the Hong Kong issue if such a strategy were pursued aggressively, warned analysts, was that London-based investors might buy shares intended to be registered in Hong Kong and repatriate them to the London register - cutting the volume in Hong Kong. On risks related to the share offer in the prospectus to the issue released at the weekend, the bank warned this 'flow-back' of shares to London could adversely affect liquidity when they made their debut on the SAR market. Also contributing to the retreat in the Standard Chartered share price was a company update released by Fox-Pitt, Kelton which revised its earnings forecasts for the bank sharply downwards - by 18 per cent for next year and a further 17 per cent for 2004. 'We still like the stock and our recommendation remains outperform,' Fox-Pitt, Kelton London-based analyst Mark Thomas said. 'But the critical driver is the rate of recovery in Hong Kong bankruptcies.' Announcing the issue of a maximum of 35 million new shares to support the bank's dual listing in Hong Kong - set to make its debut on October 31 - Standard Chartered group chief executive Mervyn Davies said the commitment deserved to be recognised with inclusion in the Hang Seng Index. Vincent Kwan, director and general manager of index compiler HSI Services, yesterday said a quarterly review of Index members was under way. The results of the survey would be announced towards the middle of next month. 'We will examine the Standard Chartered issue prospectus as part of this review - but that is simply normal practice,' Mr Kwan said. He refused to comment on Standard Chartered's hopes for inclusion in the Hong Kong index. Hong Kong Exchanges and Clearing said Standard Chartered - which earns about one third of its global revenues in Hong Kong - would be regarded as a domestic company. This would remove the bar to inclusion in the HSI against foreign companies, pointed out analysts, though the small size of the Hong Kong float (just 35 million shares) was likely to count against the bank. Bank of China (Hong Kong), which listed earlier this year, would be ahead in the queue for inclusion in the index, analysts said.