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SCMP Reporter

Persistently high oil prices and worries over further central government austerity measures put pressure on prices

The Hong Kong  market ended lower yesterday amid mild profit taking on property plays and a lack of buying interest from investors before the United States Federal Reserve meeting on interest rates.

The market generally believed the Federal Open Market Committee would raise the Fed funds rate 25 basis points  but expected the committee  to make no adjustments  at next month's meeting following surprisingly weak US employment data announced last week.

Persistently high oil prices  also kept investors away from equities on concerns high energy costs would hurt corporate profit margins. Crude prices touched another record high, approaching US$45 per barrel in Asian trading  yesterday.

The Hang Seng Index fell 0.47 per cent or 59.37 points to 12,408.04 while the H-share index lost 1.2 per cent or 50.7 points to 4,153.96.

Investors were becoming more and more cautious on mainland plays, fearing  further austerity measures after  Premier Wen Jiabao called for a strengthening of macroeconomic controls to curb investments.

Some players were also concerned  about the production 'bottleneck' problems in the mainland, which will affect corporate profitability.

'Investors were more confident  on China's economy in the past two months on expectations of a 'soft landing'. However, more problems such as shortages in power, labour and water have emerged before we see any sign of a soft-landing,' one fund manager said.

'Technically, the H-share index also looked weak.'  He expected the  H-share index to gradually  drop to the 3,500-point level over the next two months.

Yanzhou Coal Mining lost 2.99 per cent to $8.10 yesterday, extending Monday's loss of 3.46 per cent after the  central government ordered a temporary 8 per cent cap on domestic thermal coal  price increases.

However, the company said during a conference call to analysts and fund managers that the cap would be beneficial.

'The coal miner can  renegotiate  the contract price sealed early this year,' said one fund manager who had attended the conference call.

Noting the domestic contract price signed by Yanzhou Coal was at 200 yuan per tonne this year, 'if negotiation proves successful, as a result of the 8 per cent price  rise, another 20 yuan per tonne could be added to the contract price,' the fund manager said.

But 'short-term sentiment on Yanzhou Coal would be weak and I would go for the power producers', he said.

Power producers have suffered from contracting profit margins in the first half as electricity tariff rises were not able to catch up with  soaring coal prices.

'The cap on coal prices would help contain the rising coal prices,' the fund manager said.

Datang International rose 1.69 per cent to $6. Huaneng Power, however, fell 3.33 per cent to $5.80 before its results announcement, made after the market closed.

Huaneng posted net profits of 2.48 billion yuan for the first six months, compared with 2.29 billion yuan for the same period last year.

PCCW lost 2.83 per cent to $5.15 despite realising $920 million from pre-sales of half of Cyberport's residential units.

Brokers said investors were more concerned  about PCCW's continued erosion in the local fixed-line telephony market.

Mild profit taking reined in property counters after their recent strong run.

Hang Lung Properties lost 1.83 per cent to $10.70, Cheung Kong fell 1.21 per cent to $60.75 and Sun Hung Kai Properties skidded 0.36 per cent to $67.50.

Kerry Properties, however, bucked the  downward trend. It added 1.59 per cent to $12.75 after it recorded operating profits of $756 million for the first half, compared with a loss of $573.5 million a year earlier.

Conglomerate Swire Pacific, being the best performing blue chip on Monday,  surged 1.43 per cent to $53.25 in anticipation of a decent earnings announcement due tomorrow  amid strong recovery from its aviation, property and beverage businesses.

Cathay Pacific Airways, however, dived 0.36 per cent to $14 on worries over high jet fuel costs despite hopes of record revenue being announced today.

First Pacific soared 4.76 per cent to $2.20. Citigroup Smith Barney has upgraded its rating on the counter from 'sell' to 'hold', with a price target of $2.45, on improved earning prospects based on hopes of a turnaround at Philippine Long Distance Telephone.

It has also raised its earnings estimates by 22 per cent to 24 per cent over the next three years.



Shares drift lower while players await Fed move