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SCMP Reporter

Investors await further clues from US on inflation and pace of expected rises in interest rates

Leading stocks drifted sideways for a second day yesterday as investors awaited further clues on  inflation in the United States and the pace of  upcoming interest-rate increases.

In the absence of fresh drivers for  blue-chip stocks, some players continued to focus their attention on small-caps, although the previous session's speculative buying trend generally gave way to profit taking, especially  Macau concept stocks, brokers said.

Among the previous day's high-flying 'gaming' stocks, A-Max retreated 8.57 per cent  to 96 cents  and Melco International Development dropped 5.05 per cent  to $21.60.

Both companies were among the day's  most actively traded stocks.

Hang Fung Gold   slipped 1.83 per cent  to $1.07,  although fellow jewellery chain operator Chow Sang Sang continued to push on, gaining 2.65 per cent  to a record close of $5.80.

The Hang Seng Index hovered in a range of 56 points throughout the session, which was even narrower than the 62-point range seen on Monday.

It closed down 1.88 points  at 13,658.05,  after falling 6.79 points the previous day.

The H-share index fell 0.54 per cent,  or 26.28 points, to 4,839.74  helped by a 0.78 per cent rebound in Sinopec after a six-day decline in oil prices came to an end.

Off-shore oil producer CNOOC added 0.58 per cent after saying it had  bought a 16.69 per cent stake in Canadian oil sands company MEG Energy Corp for US$122 million.

Jiangxi Copper added 0.58 per cent  to $4.30  after copper prices rose to a record high in London. The company also reported a 41 per cent increase in first-quarter profits and said it had secured additional gold and copper supplies through an investment in  a  mine in Pakistan.

Total trading volumes fell further to $10.73 billion from Monday's $11.86 billion, which brokers said was clear evidence that institutional investors were taking their money elsewhere.

Standard Life Investments said in a report that it had reduced its exposure to Hong Kong from 'heavy' to 'light' despite  a positive view on the economy.

'Economic data looks encouraging and it is unlikely that a modest increase in interest rates will stifle consumption growth. However, we believe that these supporting factors are fully priced into the market,' said Elizabeth Soon, the head of Pacific Basin equities at the  fund management firm.

This comes as the Hang Seng Index has already fallen 4.02 per cent this year, making Hong Kong the second-worst performing market in the region after Malaysia, where the benchmark index is down 4.54 per cent.

While the direction on Wall Street is expected to remain a key driver of the local market, some analysts suggest more downside could be in store in  coming days.

'If we see some action in the short term, it's more likely to be a pull-back than an upside break as the index is closer to the next resistance [at 13,700-13,750] than to the support at 13,400,' said Alex Wong Kwok-ying, a research manager at Rexcapital Asset Management.

The release of the minutes from the latest Federal Reserve policy meeting, scheduled for late last night,  could be a trigger for such a move if they showed rising concern about inflation, he said.

Blue-chip property counters shook off rate worries,  and collectively edged higher  amid reports of buoyant home sales in the first quarter and expectations that a new luxury project to be launched by Sun Hung Kai Properties later this week will help support  the market further.

SHKP  added 0.35 per cent  to $71,  Hang Lung Properties rose 0.88 per cent  to $11.40  and Henderson Land Development gained 0.29 per cent  to $34.40.

Denway Motors was the worst-performing blue chip for the second day as a first-quarter profit warning by Shanghai Automotive Industry Corp was taken as an indication of slumping earnings at all mainland carmakers.

Denway, which will report last year's  earnings tomorrow,  fell 1.78 per cent  to $2.75  after giving up 2.61 per cent on Monday.

Mainland insurance companies were also under pressure amid expectations that their full-year earnings reports would be on the weak side.

'On balance, we expect 2004 annual results to provide 'negative' surprises,' Morgan Stanley  analyst Domenico Giuliano said in a  note to investors.

'Investment yields will not have changed materially and new business values will show a deterioration in margins,' he added.

China Life Insurance fell 2.88 per cent  to $5.05,   PICC Property & Casualty dropped 1.02 per cent  to $2.425  and Ping An Insurance slipped 0.4 per cent  to $12.30.

China Eastern Airlines was the worst-performing H share, with a 3.59 per cent  decline to $1.34  before  its full-year earnings report. After the market closed the company said the 2003 loss had turned into a lower than expected  514 million yuan profit last year.

Air China, which closed the day unchanged, said  last year's bottom line improved almost  15-fold to a record 2.39 billion yuan - comfortably above the 2.21 billion yuan forecast in the company's listing prospectus.



Small-caps in focus as  blue chips drift sideways