Last week a report from Morgan Stanley sent shivers down the spines of many investors as the market took it as a major bear comment on Hong Kong stocks. Here is an edited version of the report.
HONG KONG'S Hang Seng Index seems stuck in a trading range of 9,500 to 11,500. The Index should ping-pong between the upper and lower limits with every tremor of global optimism and pessimism about interest rates and China.
Yet, when one looks out the window, the same throngs of craft furrow the harbour's dirty waters in a creative confusion of wakes and waves, and nothing seems to have changed or slowed the real economy.
Buyers should look at the Hang Seng below 10,000 and sellers above 11,000 until something happens to make the index bounce out of this rut. For the moment, it would be best leave one's weighting at five per cent, midway between a statement of pessimism, which would take it down on two to three per cent, and one of optimism, which would take it up to seven per cent or so.
The factors which could take the Hang Seng through 7,000 some time this year are simply the reverse of those that would drive it up to 14,000.
If China's MFN status is not renewed, $20 billion of China's trade would be at risk, GNP growth in Hong Kong might fall to three per cent from the forecast five per cent and 75,000 jobs could be lost.