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SCMP Reporter

Trading cools down as players await tomorrow's budget plan and the fourth-quarter GDP numbers

A strong run by China Mobile helped Hong Kong's leading stocks to finish slightly higher yesterday, but trading activity slowed significantly amid ongoing uncertainty about the first rise in Hong Kong lending rates this cycle.

Many investors also chose to stay sidelined ahead of Financial Secretary Henry Tang's annual budget presentation  tomorrow.

'The budget is expected to be neutral, but it could contain some positive news with regard to where the economy is heading,' said Peter Lai Wing-leung, director of sales at DBS Vickers Securities.

Fourth-quarter gross domestic product data  is  due for release after the market closes  tomorrow but  it is  likely to be revealed in the afternoon budget speech together with an updated government forecast of Hong Kong's economic growth.

Market participants said investors  would also eye the size of the 2004-05 budget surplus, as it could potentially have some market impact.

The Hang Seng Index rose 0.11 per cent, or 15.92 points, to 13,906.85 after reversing a 74.65 point drop early in the session. More than half of the blue chips fell   while six were unchanged and nine finished higher.

The star performer was China Mobile, which singlehandedly contributed 31.6 points to the index gains, followed by a 17.9 point contribution by HSBC.

Brokers said China Mobile was snapped up partly because of its stronger-than-expected 2004 earnings report on Friday, which led some banks, including Merrill Lynch, to upgrade their earnings estimates for the current year as well.

Some funds were also switching money out of China Unicom, which  was seen to have 'limited potential for further development and is expected to post less impressive earnings next week' and putting it into China Mobile, Mr Lai said.

China Mobile gained 1.95 per cent to $26.10 following a 2.61 per cent rise on Friday while China Unicom dropped 4.41 per cent to $6.50,  making it the worst-performing  index constituent  yesterday.

HSBC gained 50 cents, or 0.39 per cent, to $128.50.

Core Pacific-Yamaichi International research director Alex Tang said similar rotational buying was evident in other sectors as investors were lacking catalysts to push the overall market  in either direction.

He said another example  was PetroChina's 1.03 per cent rise to $4.90 while Sinopec struggled despite higher oil prices and ended 0.74 per cent lower at $3.35.

'We also have a sell on Wharf Holdings and a buy on Swire Pacific due to [the latter's] greater growth potential,' he said.

Swire added 1.16 per cent  to $65.50 while Wharf fell 0.77 per cent to $25.75.

Property stocks were weak as a group, however, with the sector index falling 0.25 per cent amid  concern that higher local interest rates  would  damage  demand for new homes.

Sun Hung Kai Properties  shed 0.34 per cent to $72.75 and Cheung Kong (Holdings)  lost 0.35 per cent.

'A Hong Kong rate hike is definitely imminent and investors are  watching for more [capital] outflows that could drive our rates higher before the next FOMC meeting even,' Mr Tang said.

However, he said it  was mainly the uncertainty about the timing and magnitude of the first rate move that  had capped the local market's upside. Once rates start to go up, the market should  also head higher.

'The key driver will be the excellent corporate earnings,' he said.

Luxury developer Kerry Properties dropped 6.17 per cent from last week's 7 ?-year high to $18.25 as it resumed trading after selling $2.5 billion worth of convertible bonds.

Some brokers said investors worried about the potential share dilution, which  could be as large as 7.95 per cent if the five-year bonds  were converted in full.

But Mr Lai  said it was  common practice for fund managers to buy the convertibles and sell the stock.

'This is a safer investment - if the share price goes up, they can convert the bonds and if it goes down, they will get their capital back when the bonds mature.'

Among the H shares, Sinopec Shanghai Petrochemical stood out with a 2.16 per cent rise to $3.55 while  China Shipping Container Lines and China Shipping Development were also strong, gaining just over 1.3 per cent each.

However, the H-share index finished 0.09 per cent, or 4.4 points, lower at 4,999.84,  weighed down by Sinopec, China Life Insurance and Yanzhou Coal Mining among other losers.

China Life  fell  0.94 per cent and Yanzhou 1.26 per cent.

Conglomerate First Pacific  extended its recent strong share price performance  after reporting an 82 per cent rise in  earnings last year due to good profit growth at 24 per cent-owned Philippine Long Distance Telephone.

The stock gained 0.99 per cent to $2.55, taking its year-to-date advance to 22.8 per cent.



China Mobile helps lift market from doldrums