Market dives 3pc as China slams reforms
THE Hang Seng Index dived 3.1 per cent, or 331.21 points, to close at 10,432.02 yesterday as Governor Chris Patten's reform proposals brought a swift and strong rebuke from China.
In London trading last night, the Robert Fleming Index, which tracks Hong Kong stock prices there, was down a further 238 points to 10,194.
Brokers have recently regarded 10,200 as a support level for the market, and suggested that if this were broken the index might well slip below the 10,000 mark.
Market makers had expected a response from China over the passing of the electoral reforms, but were surprised by the speed and severity of the response.
Just hours after the reform bill was passed by Legco, Xinhua (the New China News Agency) said the Governor had ''slammed the door shut on further negotiations,'' ending hopes of an agreement between the two sides.
Salomon Brothers vice-president David Williamson said: ''By responding quickly and strongly China has made overseas investors nervous in the short term.'' Peregrine sales director Chris Malpass said the political developments were not a surprise, but the two sides seemed diametrically opposed.
''This may impact on the economic development of Hong Kong if agreements are not reached,'' he said.
Many brokers cautioned that the market had been weak lately, and that the drop of 331 points was not as serious as it looked.
Continued US selling and volatility in the futures market were cited as reasons for the market's fall.
Brokers predicted further volatility for today as February futures contracts were settled and investors rolled over their positions.
''We could see more selling pressure as people roll over into March contracts,'' one broker said.
Volume yesterday was $4.39 billion, continuing the recent trend of low-volume and high-volatility trading.
Barclays de Zoete Wedd assistant director Nial Gooding said: ''Volume has gone through a hole in the wall because investors don't know what to focus on.'' Share volume was 861.29 million from 32,364 transactions.
Trading yesterday opened weaker on the back of overnight London movements, and eased to the 10,600 level before climbing back up to 10,707.75 by 11.30 am.
Then, strong selling pressure took the top off the market and the index winded its way back down to 10,570, before climbing slightly higher to end the morning at 10,580.08.
In the afternoon, the market took a nose-dive after the Governor announced more of his reform package, which was stripped of earlier concessions made to China.
Analysts said there was some local retail panic in the face of the political storm, while cashed-up American investors waited for the short-term picture to clear.
The index lost 150 points in the afternoon session before firming slightly at the close.
February futures contracts settled below the index's close at 10,350, down 390 points, while March contracts settled at 10,360 points, down 355 points. Trading was brisk with 24,927 contracts traded.
Most blue chips lost ground yesterday as the market went through what one analyst described as an orderly withdrawal.
HSBC closed down $2 at $115, on $419.27 million turnover.
Sun Hung Kai, one of the best performers on Wednesday, lost 4.92 per cent yesterday to close $3 down at $58, on $205.41 million turnover.
Cheung Kong lost $1.75 to close at $43.50, on $204.58 million turnover, while Hutchison Whampoa lost $2 to close at $34, on $164.15 million turnover.
The one blue chip to buck the trend was TVB, as one of the top 10 performing stocks on the day.
TVB gained 2.56 per cent to close 70 cents higher at $28, on $15.24 million turnover.