Latest US inflation data rattle investors

PUBLISHED : Thursday, 03 November, 1994, 12:00am
UPDATED : Thursday, 03 November, 1994, 12:00am

PRICES continued to fall yesterday amid uncertainty over interest rates, with the latest United States figures pointing to strong inflationary pressures.

The Hang Seng Index trimmed 121.64 points to close at 9,451.76, down 1.27 per cent.

Turnover was a meagre $2.24 billion.

H shares were active, accounting for 4.39 per cent of total turnover. Yet strength still remained in blue chips, making up 63.89 per cent.

While the future landing of some mainland counters might improve sentiment towards H shares in general, trading was also boosted by China funds which started to buy the stocks following careful selections, said brokers.

The interest-rate rise fears still dominated trading.

The US Purchasing Managers' Index came late on Tuesday night, showing a rise to 59.7 from 58.2 in September. This was the highest jump since December 1987.

Most investors are awaiting the US Federal Reserve's meeting in two weeks after which an increase of 0.5 percentage point in interest rates is expected to be announced.

Yamaichi research director Alex Tang Yee-yuk said: 'In case of a half percentage point rate rise, the prime rate [in both the US and Hong Kong] will stand at 8.25 per cent. It is still in line with inflation. The market may benefit from the clearance of uncertainties.

'There is a general feeling that the maximum increase is 0.75 point. If the rise is higher than that, it will drag on the domestic market. In that case, I'm not confident in any support at the 9,000-level.' To make matters worse, the US dollar yesterday fell to a low of 96.32 yen.

Mr Tang said it disappointed most investors who expected the dollar would not drop to below 97 yen.

However, he believed there would be year-end rally although it might be delayed.

'In terms of price-earnings ratio and fundamentals, Hong Kong companies are still attractive. But of course, the rally may not be very strong because the companies' earning momentum has pointed slightly downwards recently.' Another good indication was the absence of a large dumping of stocks, although China and Britain did not sign an agreement on the new airport's financing package yesterday as expected.

Nevertheless, brokers were optimistic about an agreement, saying it was just a matter of time.

In the wake of a fall on Wall Street and on Hong Kong stocks traded in London overnight, domestic stocks opened down more than 100 points, reaching the day's low of 9,429.73.

Some institutions then bought at the marked-down prices.

The index climbed to its high of 9,514 at 11.45 am.

Brokers said some fund managers had switched their investment to counters which were cheaply priced.

Hongkong Electric, which had been bumped from a high of $35.50 early in the year and had kept at about $20, rose five cents to $24.10.

Jardine Matheson gained 25 cents to $64. It was priced as high as $76 on September 9.

However, haunted by its delisting, the counter has been on a downward trend.

Banks were also investor favourites because most would announce final results after the new year and investors would likely trade in their stocks beforehand, said brokers.

Against the general downward trend, Hang Seng Bank and Bank of East Asia closed unchanged.

Hang Seng Bank stayed at $55.75, while Bank of East Asia stood at $33.50.

HSBC, however, lost $1 or 1.09 per cent to $90.

The fall of the heaviest-traded stock was triggered by the overall weak sentiment and its decline in London overnight.

The finance sub-index lost 0.7 per cent.