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SCMP Reporter

THE question this week is how seriously US institutions are going to read the change in the pied piper's tune by Morgan Stanley last week.

  A week of uncertain trading is ahead as overseas investors react to the switch in Morgan Stanley's weighting for Hong Kong and as local investors try to work out just where Sino-British relations are going.

  There are no major corporate announcements due although confirmation from HSBC of its $2 billion floating-rate bond proposals would provide local capital markets with a morale booster.

  The Sino-British situation appears stuck again but this is unlikely to hurt sentiment unless there is a major fracture in relations.

  The Sino-US summit is unlikely to alter sentiment as talks produced nothing tangible, with both sides coming out of the controversial meeting without a firm view on what had happened.

  Morgan Stanley global strategist Barton Biggs had on September 29 re-rated the stock market, saying he was ''maximum bullish'' on the place. This triggered a 30 per cent rise in the index from 7,470 to 9,733.34.

  Will his new re-rating cause an equally significant downturn? Probably not.

  When Mr Biggs said ''jump'' it appeared the US institutions asked: ''How high?''    Now that he has cut his weighting Mr Biggs is probably signalling things have gone far enough for the time-being.

  The key indicator to watch is turnover, as has been the case for almost eight weeks.

  The trading pattern since September 29 has been a rising index on climbing turnover.

   Records are built on turnovers rising from $6 billion to above $8 billion. Normally the surge peaks at above $9 billion. A high above $10 billion would normally signal the end of a surge.

  Periods of falling index movement have come on the back of lacklustre turnover. Market activity during these periods rarely gets above $7 billion. It normally hangs around the $5 billion to $6 billion level.

  At present this pattern remains secure, but is it about to turn?   It would appear unlikely that a major sell-off inspired by Mr Biggs is due.

   The first sign of this will be falling index movement on rising turnover. This spells something more than mere profit-taking and indicates an exodus of capital.

  However, we are constantly being told US investors are more long term than those generally found in Hong Kong.

   Those coming in on the back of the Biggs recommendation will have only just managed to get their full weightings by now. It is likely these longer-term investors will stay in.

   There is unlikely to be a slide to 7,470 in a complete reversal of the up-trend.

   But there is going to be volatility as shorter-term investors and some US mutual fund investors sell off in a knee-jerk reaction to Mr Biggs' new tune.

  A major sell-off by major US institutions now would make something of a mockery of the serious US investor's view of the world outside Manhattan or Boston.



Index faces uncertainties