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Analysts say the market was just looking for an excuse to correct and see the effect as short-term

Property stocks dragged down the Hang Seng Index yesterday after key  banks in the city raised their  lending rates for the fourth time in the past four months.

The benchmark index fell 53.07 points, or 0.37 per cent, to 14,124.8 after trading between 14,101.56 and 14,161  during the day.

Turnover dropped slightly to $15.05 billion worth of shares from Monday's $15.81 billion.

After the market close on Monday most  key  banks in Hong Kong, such as  HSBC, Bank of China (Hong Kong)  and Standard Chartered,  raised their prime rates by 50 basis points to 6.25 per cent or 6.5 per cent following the 25 basis point  increase in the US benchmark  rate last week.

Dao Hang Securities said in a note to clients that the interest-rate rises in  Hong Kong  were 'higher than expected' and put pressure on share prices of 'highly geared property companies including New World Development and Great Eagle'.

New World Development was the biggest blue-chip decliner yesterday, falling  3.14 per cent  to $9.25. Great Eagle  dropped 1.01 per cent to close at $19.55.  As of the end of last year, New World Development and Great Eagle had net debt of $18.3 billion and $15.1 billion, representing 33 per cent and 84 per cent of their shareholders' funds respectively.

Share prices of other major property developers also softened. Henderson Land dropped 1.2 per cent to $36.75, Cheung Kong lost 0.99 per cent to $74.80 and Sun Hung Kai Properties fell 0.71 per cent to $76.00.

Macquarie Research said  that 'the mortgage-rate hike would impact short-term market sentiment, resulting in a short-term consolidation in volume, but is not expected to affect prices'.

The Australian brokerage said that with housing affordability and  the improving overall economy, 'the rate hike should have limited adverse impact over the medium term'.  It maintained its positive outlook on the Hong Kong property market.

Alex Tang, research director at Core Pacific-Yamaichi International, also said investors' sentiments toward the stock market remained bullish on improved economic fundamentals.

'The property sector was under pressure but there was  not much selling  in the rest of the market,' Mr Tang said.

The Hang Seng Property sub-index was the biggest decliner among the four sub-indices, declining  0.92 per cent, or 162.6 points, to 17,363.83.

The  Hang Seng finance,  utilities and  commerce and industry sub-indices, fell  0.27 per cent, 0.1 per cent and 0.35 per cent respectively.

Mr Tang said the market needed a reason to correct after it reached its peak last week and the local interest rates rise was 'a good excuse'.

The Hang Seng Index reached a four-year high of 14,287.44 last Tuesday and has fallen 162.64 points, or 1.13 per cent, since then.

Mr Tang expects the blue-chip index  to stay high and test the peak of 14,300 this month  on investors' expectation of improved corporate first-half earnings.   Companies  will start reporting next month.

The July futures contract was down  44 points  at 14,176.

Handset equipment maker Foxconn was yesterday's star performer,  gaining 6.08 per cent to $6.10 after Morgan Stanley upgraded its profit forecast for the company.

The US brokerage said  that the company's 'growth story' remained intact and was underpinned by an enhanced relationship with Motorola through its recent investment in Tian Jin.

It also set a target price of $6.50 for Foxconn with an 'overweight' rating.

Meanwhile, a source familiar with flexible printed circuit maker Global Flex's planned  $578 million initial public offering said  the company still tentatively targeted to list on the  stock exchange on July 22 despite the delay of an investor presentation planned for Monday.

Separately, mainland chilled and frozen pork company Yurun Foods  decided on Monday night that it would  begin  its  $1.6 billion initial public offering  after summer holiday,  said a source.

Yurun is expected to  get  formal approval from the listing committee in the next few  days after it received preliminary approval  last week.

The retail and institutional books of R&F Properties, a  Guangdong-based company, which is tapping the market for up to $2.21 billion, close tomorrow.

Market observers said that the retail tranche had received a lukewarm response but the institutional book was relatively more popular and was expected to be fully covered.



Index slips as rate rise hits property stocks