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Georgina Lee

Volume falls to second-lowest level of the year as speculative funds continue retreat

The Hang Seng Index closed slightly higher yesterday as trading volume hit its second-lowest level of the year.

Razor-thin turnover of $9.83 billion barely exceeded the $9.43 billion recorded on February 8, a half-day trading session before the Lunar New Year holiday.

Property stocks provided some momentum as the sector recovered from several consecutive days of losses triggered by concerns over interest rates.

The blue-chip index closed up 20.19 points, or 0.15 per cent, at 13,719.32, hovering within a narrow 50-point range for most of the day,

'Since the Hong Kong Monetary Authority revised its currency-peg system last week there has been a withdrawal of hot money,' said Ben Kwong Man-bun, a director of investment services at KGI Asia.

'Along with the uncertainty introduced by recent rate rises by banks, the adjustment has prompted a market consolidation.'

Last week, the HKMA defined a new trading band for the local currency, introducing a ceiling of $7.75 to the US dollar and a floor of  $7.85. Previously, the de facto central bank defended the local currency at $7.80 to the greenback, but left the ceiling undefined.

Banks responded by  raising lending and deposit rates by  half a percentage point on Monday, as  the outflow of speculative capital from the banking system  sent interbank rates higher.

Leading the property sector higher was Hang Lung Properties, up 1.34 per cent to $11.30. Swire Pacific gained 0.78 per cent to $64.25 and Sun Hung Kai Properties added 0.68 per cent to $73.50.

'Property stocks had been oversold recently,' said Mr Kwong. 'At this point, I think the market has already discounted the effect from the rate rises.'

Kenny Tang Sing-hing, an associate director of research at Tung Tai Securities, said that while short-term property transactions would slow due to higher rates, property values should remain strong.

Meanwhile, the H-share index gained 13.67 points, or 0.3 per cent, to close at 4,579.81.

Heavyweight PetroChina rose 1.04 per cent to $4.82 and Sinopec Shanghai Petrochemical added  0.87 per cent to $2.90.

Alex Tang Yee-yuk, a research director at Core Pacific-Yamaichi International, said H shares had been under pressure since February, with more than half of the 24 largest counters recording declines in gross profit margin.

'H shares are still mired in their own profitability weaknesses, which is why you don't see H shares outperforming the rest of the market on the expectation of yuan appreciation,' said Mr Tang.

Trimming H-share gains yesterday was cement maker Anhui Conch Cement, which shed 2.15 per cent to $6.80.

Its first-quarter gross profit margins fell to 17 per cent, from 52 per cent a year ago.

China Eastern Airlines fell 1.4 per cent to $1.40.

Punters bet on rumours yesterday that Asia Standard International would privatise subsidiary Asia Standard Hotel, sending the latter up by 84.74 per cent to $1.09. The parent firm rose 13.63 per cent to 37.5 cents.

Asia Standard Hotel later issued a stock exchange announcement saying it was unaware of any reason for the rise in its share price and was not pursuing any acquisitions.

Traders said the Hang Seng Index was likely to remain range-bound this week, between 13,600 and 13,800 points.

'Upcoming initial public offerings by Bank of Communications, China Minsheng Bank and China Shenhua Energy, which together are looking to tap some $30 billion in funds from the market, should provide some new momentum and  inject new capital into the market,' said Mr Tang.



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