UNCERTAINTY is expected to dominate market sentiment this week in the aftermath of Japanese Prime Minister Morihiro Hosokawa's resignation. The Hang Seng Index finished last week 2.97 per cent higher at 9,298.22. Some Japanese funds are expected to shift their direction to the Hong Kong market, moving away from the political uncertainties resulting from Mr Hosokawa's resignation. Mr Hosokawa had said he was resigning because of a controversy over his personal finances, including a 100 million yen (about HK$7.34 million) loan in 1982 from a mob-linked trucking executive. With mixed factors, the Hong Kong market could see a pick-up in volatility with an expected trading range between 9,000 and 9,500 points. Brokers said the market direction would continue to be influenced by events outside Hong Kong such as US interest rates, the most-favoured nation (MFN) issue and Japanese market sentiment. Analysts said they did not expect Mr Hosokawa's resignation to have much of an impact on Japan's markets, which have been one of the few bright spots recently as exchanges around the region tumbled sharply. Hopes that calm had returned to the US stock and bond markets were dealt a blow on Friday when Wall Street fell as rising interest rate fears once again returned to plague the markets. The Dow Jones industrial average fell 19 points to close at 3,674.26 on a volume of 262 million shares, ending a three-day winning streak that had helped the Dow recover about half of the 200-point plunge in recent weeks and record a 38.3-point gain for the week. The Robert Fleming index of Hong Kong stocks traded in London closed on Friday night estimating the Hang Seng Index was down 17 points, to close at 9,281. The London FTSE 100-share index ended down 8.2 points at 3,120.8 after moving between 3,118.8 and 3,138. Securities firm Mansion House said: ''We believe the market will continue to be influenced by the US interest rate direction, compounded with the MFN issue and sentiment in the Japanese market. ''The continued detention of dissidents by the Chinese Government and the . . . 12-year sentence to Hong Kong reporter Xi Yang on charges of 'spying and stealing state secrets' will surely affect the renewal of MFN status to China.'' The key to this week will be the volume of trading flowing through the market. Two of the three days of trading last week saw the volume at its lowest levels in six months. Thursday's turnover of $3.01 billion followed by Friday's even lower $2.46 billion are indicative of the stand-off in the market. On the one side, there is the long-term institutional money only willing to buy if prices move lower, and even then only in small volumes. On the other, there are still investors who, due to the market's poor performance, may want to sell off some shares if the market makes some good gains. The last time low volumes were characterised by weak trading occurred just before the big sell-off in the middle of last month. The fall, which knocked nine per cent off the index, was prompted by a Morgan Stanley report saying the Hang Seng Index could drop to 7,000 points. Last week's thin volumes suggest the market is waiting for something significant to act on. Analysts said if there was a fall this week, it was unlikely to be as large as the last time because consolidation around the 9,200 level had been quite strong and well supported. Nevertheless, given the amount of bad news and the bear market in Hong Kong stocks, the index may see more down days than up this week. This week will also see the return to work of the industry's stockbrokers and fund managers, who took advantage of the Easter break and shortened trading week to take a holiday. Their return should also help to lift volumes as the industry gets back to work. Most brokers believe fund managers have pretty much settled their weightings in Hong Kong stocks. This means that although there is not likely to be much further buying from managed money, any sharp spikes downwards should be met with at least a modicum of buying support. Investors will get a good snapshot on the state of the market when Daiwa Associate lists for the first time on Thursday. Most new issues in the past two months have performed poorly. While the electronic company's initial public offering is small at $58.5 million, it makes for a good comparison with other new listings of this size, including Pricerite and Matrix. A successful first day will restore some much-needed confidence. Property sector stocks will probably be in favour this week in spite of Financial Secretary Sir Hamish Macleod's announced plans to halt the spiral in property prices. The property sub-index gained 2.26 per cent last week - under-performing the Hang Seng Index which gained 2.97 per cent - and looks due for a rebound. Mansion House has recommended Cheung Kong and CITIC Pacific as two counters worth buying. Companies to announce corporate earnings this week include Kwong Sang Hong, Peregrine Investments, Regal Hotels, South China Brokerage, South China Holdings and South China Industries. Brokers will also be concentrating on the March US consumer price index figures to be released on Wednesday. Any unexpected increase would put pressure on the Federal Reserve to raise interest rates further.
