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SCMP Reporter

Shares of HSBC Holdings  are expected to  see  volatile trading during the first three days of this week as   shareholders  consider whether to join or give up  their rights for a   US$17.7 billion rights issue due to  be decided on Wednesday.
 Market watchers expect the stock  will  continue to be under pressure and may   fall to as low as HK$35 this week.
Shares of  Britain's biggest bank slumped 2.9 per cent on  Friday  in Hong Kong to HK$43.50 each   because of rising concerns over bigger write-downs  from  deteriorating operations at its unit in the United States.
The bank's stock has slumped 23 per cent in Hong Kong since  a new fund-raising plan was announced on March 2.
 It will seek up to  US$17.7 billion by offering five new shares for every 12 ordinary shares at HK$28 each by way of  a rights issue.  
'The consistent drops in HSBC may prompt  shareholders to abandon their original idea to join the rights issue,' said Ricky Tam Siu-hing, a director at Champlus Asset Management.
Fund managers have indicated that local retail investors are keen on  the rights issue because of  the cheap  price but institutional investors are cautious about  HSBC's poor outlook amid a  soured  operating environment in the  US lending market.
 'Some well-known global funds may not join HSBC's rights issue after suffering  in  rights issues from  Standard Chartered and RBS,' said a chief investment officer at a European asset management company. 
'They could maintain their stake in HSBC by acquiring shares in the secondary market after the rights issue at a  cheaper valuation.'
Shares of HSBC would meet heavy selling pressure this week and fall  as low as HK$35 as  institutional investors might  offload  partial positions  to raise cash for the rights issue, according to market watchers.
'I would not be surprised if  HSBC drops to HK$35 this week given weak buying orders from long-term investors, though it might  see a strong technical rebound later as it has been heavily oversold,' said First Shanghai Securities strategist Linus Yip. 
Patrick Yiu Ho-yin, a managing director at CASH Asset Management, said HSBC was still in weak territory  and could only  wait for this  to bottom out when the market turns positive.
 'HSBC's share price is fair compared with its global peers. The bank is generating profits.  However, investors are sensitive and uncomfortable on its weakening balance sheet in the US market,'  Mr Yiu said. 
Macquarie Securities advises  existing HSBC shareholders to take up the  issue but nevertheless  retains an 'underperform' rating on the bank  given  continuing downward pressure on earnings and capital.
Warrant issuers said HSBC's current weakness was partly related to a  ban on the issue of new derivative products on the bank. 
'For example, institutional investors may use options/put warrants to hedge their long-positions in HSBC but now that  new supply is suspended, they may engage in more short-selling to manage risk,'   a warrant issuer said. 
Investors have until Wednesday  to decide whether to join in the  rights issue.
  HSBC has set Friday, March 13, as the date of record  for rights entitlement. 
By rights
Cheap valuation seen attracting local investors to US$17.7 billion issue 
Bank's shares continue to drop, falling to HK$43.50 on Friday last week, or: 2.9%



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HSBC

HSBC shares  may see volatility  on rights issue