HK Depositary Receipts (HDR)

Come 1 July 2008, companies already listed elsewhere in a jurisdiction acceptable to the HK authorities will be able to have their shares listed in HK by way of HK depositary receipts or "HDR". The sponsor for the HDR will either buy a batch of existing shares of the company in the home market or take a new issue of shares, and package them into a HDR which in turn will be listed in HK. This is very similar to a closed ended fund consisting of shares in a single company.

The idea is that a company that has met the listing requirement's of a regulated exchange will be able to list its shares without going through the whole application process for a new listing. This gets around the requirements of some countries that restrict their companies from listing on overseas markets. For example, many Russian listed companies have listed on the London Stock Exchange by way of "GDR's". A key requirement though is that the home market must be regulated to a similar level as HK.

Members of IOSCO, the international federation of securities regulators, have signed a multi-lateral memorandum of understanding (MOU) which would make it easier to regulate across boundaries. Therefore, companies listed in those markets will find it easier to list HDR's in HK. However, it seems that the demand comes mostly from companies whose home markets are still developing and therefore will not have been able to reach the requirements set out in the multi MOU.

GEM (Growth Enterprise Market)

On 1 July 2008, new rules will come into effect in an effort to breath new life into GEM. The GEM Board hit a peak in 2004 with 21 companies raising over HK$2.7 billion when the HKEx closed the door on backdoor listings (pun intended). Since then, fewer companies seeking listings on the GEM Board and so far this year only 2 companies have come to market raising just over HK$200 million.

Why? Because the GEM Board is not as prestigious as Nasdaq on which it was modelled. There are many reasons including rubbish companies, crooked management, etc. The end result is that companies stayed away if they could wait for a listing on the Main Board. It is hoped that the new rules will raise the threshold a bit and keep out the truly undesreving.

Key provisions:
1. Positive cashflow of at least HK$20 million for the 2 years before listing
2. At least 2 years operations under the same management
3. Continuing reporting requirements made more stringent
4. Easier promotion to the Main Board

During the review of the performance of GEM, it had been suggested that rather than tightening the rules, it should go the route of the AIM Board in London where it is "caveat emptor" (let the buyer beware). However, it was decided that the HK investor is not sufficiently sophisticated to make the appropriate judgment on a stock. Let's see if the new rules will make any difference.

Footnote: Since 2004, corporate finance advisers have found ways around the backdoor listing prohibition.

China's Foreign Currency Reserves US$1.8 Trillion

China's foreign currency reserves reached US$1.8 trillion at the end of May 2008. In May the increase was US$40.3 billion but this was slow compared to an increase of US$75 billion in April. In China, the government exchanges RMB for foreign currencies earned by Chinese companies and citizens. This creates enormous inflationary pressures as RMB are created to soak up the foreign currencies.

The People's Bank of China, the central bank, then issues bonds to soak up the excess RMB. This means that banks are flushed with cash and so the government has to raise the banks reserve ratios to try and limit lending growth.

The central bank also suspects that there is "illegal" inflow of foreign currency betting on an increase in the RMB exchange rate. This "illegal" inflow consists of over billing foreign companies, or foreign companies under billing and leaving RMB balances behind.

Retesting the 22,000 Support

I think we should look at the macro environment first.

The sub prime crisis in the US and Europe will impact consumer spending in those countries and in turn impact China's exports. However, China's own internal growth is accelerating and this will offset the impact of any US and European downtuen.

With the winding down of building and construction for the Olympics, we had originally forecast a slowdown. However, the re-building in Sichuan will be substantial, and the knockon effect (i.e. improved construction materials etc.) will mean this sector will continue to develop.

Therefore, construction and building materials companies should be on your list.

I would stay away from insurance companies. Not because of their losses in Sichuan but because insurance companies make their money from investing the premiums they collect before having to make payouts. With the stock market falling in China since last year, the investment income will be low if not negative. therefore, I expect that insurance companies will be reporting much lower profits this year.

I would also stay away from Hsbc as it is a global bank with assets in the US and Eurpoe which will suffer from the sub prime and other write downs of securitied instruments. Stay with chinese banks.

Is it time to buy China Construction Bank?

The HK stock market rose 0.41% to close at 25,618 ending a week of big swings.
Top story for the day was the placement of 400 million shares of China Construction Bank (CCB #939) at HK$7.05 which is a discount of 2.5% to the market close of HK$7.23 yesterday. CCB closed today at 7.04 bid and 7.05 offer.
The 400 million is only 0.18% of the 224.7 billion shares issued and amount to only 1 day’s turnover in the stock. However, investors are concerned that other strategic investors who were allocated stock in the IPO will start selling. Bank of America which holds 9% will be able to sell in October 2008 at the end of the lock up period. Temasek still has 5.99% which it can sell.

Strategic investors sell their stakes for a variety of reasons which may or may not have anything to do with the company’s performance. Mostly, sales are made to replenish the strategic investors’ own capital and this may be the case in the aftermath of the subprime crisis. Sales by strategic investors do tend to dampen market interests because of the fear of an overhang of stock coming to the market.

As Temasek sold at this level last year, it is reasonable to assume that this would be a good level to use as a base. CCB went as high as HK$9.00 last year and I believe that it would go much higher as Chinese consumers discover banking and financial products, and more deposits find their way into the system.

Accumulate CCB at the current levels.

END

www.goldride.com

Oil reaches USD120 per barrel

The HK stock market fell in line with the mainland market. The Hang Seng Index fell 651 to 25,610 (2.48%) while the Shanghai Index fell 4.13%.

Investors on the mainland are worried that there will be a flood of new shares from the end of the moratorium on majority shareholders, and the proposed share offering by Ping An Insurance of RMB 120 billion A shares and RMB 41 billion of bonds.

The price of oil reaching USD 120 also spooked investors especially since Goldman Sachs is now predicting USD 200 per barrel. Goldman was very prescient last year when they predicted that oil will top USD 100 per barrel by the yearend.

There were also rumours of housecleaning at the CSRC (China Securities Regulatory Commission) which added to market woes.

We do not see the market falling back to the 21,000 level where there had already been substantial consolidation, and has been tested 3 times. The market has fallen 10,000 from the high of 31,000 in October 2007 to the 21,100 level in January 2008. Since then the market has recovered about half the losses. Short term target on the upside is 27,000 to 28,000 with a downside to 24,000. At 24,000 there is good opportunity to accumulate shares for the next leg up.

The fallout from subprime is coming to an end. The bad news on the horizon is oil price.

END

"Broker anonymity" or "What do you have to hide?"

I addressed the World Federation of Exchanges Town Hall Meeting in Hong Kong today Wednesday 26 March 2008.

Dominant institutional brokers are demanding that exchanges move towards broker anonymity i.e. not display brokers' ids on the trading screens. What do they have to hide? For a start, many trade on their own book and they want to disguise their trades from clients. If you are advising a listed company, you certainly don't want the company to know that you are selling their shares on the open market.

Many also use their own capital to buy a block of shares which a client wants to sell. They then "slice and dice" the block and re-sell on the market, at a profit of course. How would you feel if you jsut sold a block to your broker and then see him seeing the same shares at a higher price.

Finally, clients like to monitor the execution of their trades, and without broker ids' on the trading screens, this is impossible to do.

The following is the text of my speech.

WFE Hong Kong Town Hall Meeting
26 March 2008
Panel 3: Market Quality – Changing the Competitive Environment

Good morning ladies and gentlemen.
The topic is very timely as exchanges compete for market share with each other and with trading venues such as ECN’s, ATS, etc. It is only natural that exchanges look at the “micro trading mechanisms” of these alternative venues and consider changes to your own market structures to compete effectively.

Recently, we have seen a move towards what is commonly known as “broker anonymity”. The demand appears to come from dominant brokerage houses which find it difficult to complete large client orders and attribute this to “front running” by other market participants. Let’s get this straight. “Front running” is used to describe the illegal behavior of a broker buying or selling ahead of a client order so as to profit from the subsequent movement in the market. There is nothing illegal for a broker to trade ahead of another broker because he thinks that other broker may be acting for a big client with a large order that may move the market.

Let me quote you a passage from a report supporting “broker anonymity” --- “Transparency invites market manipulation, increases volatility, distorts pricing and ultimately reduces liquidity”. Sounds counter intuitive doesn’t it?

“Market transparency” is the ability of market participants to observe information in the trading process. Pre-trading market transparency provides a level playing field for all stakeholders in a market and is a key component of price discovery. “Post trading transparency” is only sufficient as an audit trail to guard against market abuses. It is not a substitute for real time price discovery which tends to stablise prices, increase liquidity and lower transactional costs.

There are a number of stakeholders in a market, each with their own interests and agendas. We have the government representing public interests, the regulators who are there to protect the investing public, the issuers who need a properly functioning market for fund raising, investors (both institutional and retail), and intermediaries. Ultimately, the market is for issuers and investors, and the regulators and intermediaries are there to facilitate trading and to guard against abuses.

For investors and issuers, market quality is measured in terms of a level playing field, price stability, risk management, information flow, liquidity, and trading volumes. “Broker anonymity” tilts the playing field in favour of those in the know i.e. information on trade flows will be concentrated at the trading desks of the dominant brokerages, and available only to their favoured clients.

Investors and fund managers are overwhelmingly in favour of full transparency in trading and disclosure of broker identification on trading screens. This allows them to properly monitor the execution of their orders. Broker anonymity reduces the transparency in a market and makes it difficult for fund manager, who have a fiduciary duty to their clients to ensure that there is best execution, to monitor the execution of their orders.

As a matter of fact, there has been a trend towards more transparency in all aspects of the market. For example, price discovery is facilitated through pre-opening auction sessions. “Broker anonymity”, therefore, appears to be a step back to opaque markets where only the brokers know who is buying and who is selling.

As operators of exchanges, you have a fiduciary duty to your stockholders to maximize returns, and certainly increasing turnover and trade flow must be at the very top of your list of priorities. However, in every financial market, there are a number of stakeholders whose interests must be safeguarded.

Markets and trading venues developed and evolved to fill a need. Their trading structures are very much a product of their history, and development. To a large extent, there is no one market structure that fits all exchanges or even all stocks traded on a single exchange.

In HK, public interest is enshrined in the law that created the HKEx. Public consultations are conducted prior to the introduction of major new initiatives, and new products and trading practices are vetted by the SFC which takes a balanced approach and ensures that the interests of all stakeholders are considered.

In HK, our trading system is automatic order matching and therefore there is no partiality as brokers cannot choose their counterparty. Also, we can negotiate block trades off market, but these are required to be reported to the exchange to ensure transparency.

The market in HK is not as concentrated in the hands of a small number of brokers as in other market. The top 14 brokers account for 55% of the turnover, while the next 50 account for 30%. In the Australian market for example, the top 10 brokers account for 72% of turnover while the top 4 account for 37%.

In contrast to some markets where real time information is only available to brokers, institutional and retail investors in HK have always had access to the same information as brokerages. Moreover, HK does not have trade practices which restrict the flow of information from brokers to investors. We enjoy a very level playing field indeed.

Retail investors in HK account for some 37% of the turnover while institutional investors account for 56%. Proprietary trading only accounts for 7%. In overseas markets, proprietary trading account for a much higher percentage as brokers often take client positions onto their own books and then re-distribute into the market. This is another reason why large brokerage houses would prefer to hide their trading from the prying eyes of clients who may feel aggrieved.

HK does not have competing local exchanges, and that makes life “less interesting” for our exchange operator. However, many HK issues are traded on other exchanges, and we do want to bring that liquidity back onshore.

Overall market quality and integrity is what ultimately drives investors’ interests, and liquidity and turnover will gravitate towards quality markets. “Broker anonymity” is a short–term fix at the expense of market transparency and will detract from the attractiveness of a market to investors.

For exchanges with broker anonymity, I encourage you to provide more trading information to your ultimate clients, the investors, instead of less. The HKEx has made a business out of this and derives 8% of revenues from information services, and most of this drop directly to the bottom line.

We have the best practice in HK and there is no need to regress to a less transparent model.

Fed intervenes in the US Market!

There is market intervention, and there is market intervention. But when it's done by the Fed, it's called saving the economy.

In 1998, currency speculators attacked the Thai Baht, and then went the rounds of other Asian countries bringing down the value of the local currencies and making a huge profit in the process. Shades of George Soros attacking the UK pound sterling.

The HK Governemnt instigated a series of controls limiting the ability of speculators to borrow HK dollars for short selling. Unlike the other Asian countries, HK did not have any external debt denominated in foreign currencies that could be called in. The speculators decided then to use the HK stock market as a proxy and borrowed HK stocks instead. They sold the HK stocks for HK dollars and then sold the HK dollars for US dollars, hoping to drive down both the HK dollar and HK stocks, and doubling up their winnings.

The HK governemnt spent HK$120 billion of our foreign currencies reserves buying up blue chips in the HK stock market, and was successful in halting the slide from 16,000 on the Hang seng Index to around 6,000. HK was facing a financial abyss. If the government had not intervened, the stock market would have collapsed first, and then followed by the housing market, and the rest of the economy.

The HK Government was roundly castigated for intervening in the free operation of the market by "international community" i.e. those had the most to gain by a collapse of the HK dollar and the HK stock market, and by academics in their ivory towers. As it turned out, the stock market rebounded, and the HK governemnt put the majority of the shares purchased into an exchange trade fund which is still the largest ETF in the world. By the way, the HK residents were given a discount when the ETF was floated on the HK stock market, and those who held on for 2 years were given bonus shares.

I personally believe that the Fed has a duty to defend the economy from a financial meltdown. In fact, I had pointed out earlier that the Fed's action was too late and too timid. Until now. But this begs the question of why is it ok for the Fed to intervene in a commercial transaction? The point is the Fed is lending US$30 billion to a commercial enterprise (JP Morgan) to take over another commercial enterprise (Bear Stearns). And this is a non-recourse loan. Of course, if the value of the bonds subsequently recover, the Fed will be make a profit. I hope that the Fed will consider putting this into a listed vehicle and letting the US taxpayers benefit because after all it is their money at risk.

The Asia Era: Challenges and Opportunities After The Subprime Mess

The year 2007 marked a major turning point in the financial world order. The market capitalization of the Americas (USD22.5 trillion), Europe Middle East (USD20.3 trillion) and Asia Pacific (USD19.7 trillion) were roughly equal. Over the next decade, the Asian markets are expected to continue their phenomenal growth with the expansion of the economies of China and the Indian sub continent as the new engines of growth.

Of the top 5 growth markets in 2007, the top 4 were in the 2 most populous countries China and India. Shanghai and Shenzhen grew at 303% and 244%, and Bombay and NSE grew at 122% and 115%. Except for Japan, all Asian markets enjoyed double digit growth.

During 2007, the NYSE and LSE each grew at a paltry rate of 1.5%. The US and European markets will be pre-occupied with dealing with the aftermath of the subprime debacle. New regulations expected to be put in place to prevent similar problems will handcuff the principal US and European markets in the same way that Sarbanes-Oxley inhibited US market growth in the wake of WorldCom and Enron.

The ASF is the annual gathering of the representatives of the securities industries in the Asia Pacific region. The objective of the ASF is to allow delegates to share experience and to explore opportunities in co-operation. Currently, markets represented on the ASF include Japan, Korea, China, Chinese Taiwan, Hong Kong, Thailand, Malaysia, Philippines, Indonesia, Australia, India, and Vietnam. The ASF 2008 in Hong Kong will be the 13^th in the series of annual meetings.

The ASF will consist of market reports by representatives of each market, followed by panel discussions lead by well known market professionals. This year, the panels will focus on Risk Management and what we can learn from the subprime crisis, and How to Take Advantage of Opportunities in Asia.

 

 

What If The Fed Gave A Party And Nobody Came?

The thought on the minds of investors since the Fed cut interest rates last week was "Why there isn't a stronger reaction?" The answer of course was that the cut was too late. The Fed waited until it could see the statistics reflect a slow down. By definition, that means that we have already started moving downhill by the time the numbers show up on their radar screen.

Give the Fed full marks for the aggressive cuts, 0.75% the week before (and just one week before the FOMC meeting), and 0.50% last week. It was too late but at least it was not too little. That took courage, and shows the market that the Fed will do whatever is necessary to halt the slide into recession.

Was it necessary to be so aggressive? The answer from those of us in the market day-in and day-out is a resounding "YES!" The market is very good at smelling weakness. Show uncertainty and you are dead. By giving a strong signal that it is willing to act quickly (in between meetings), and aggressively (0.75% is the largest move on record) and then following through with another 0.50% cut, the Fed is saying "don't mess with me!" Hedge funds thinking of trying to exploit the weakness in the market will not want to test the Fed now. That will stabilise the market, and allow something resembling normality to return.

So far, the financials have suffered but the word from Main Street is that profits are still rolling in. As good results start coming in, buyers will return even though financials will be on the sidelines for awhile.

Better Late Than Never!

Hong Kong's Hang Seng Index rose 2,332 points (10.7%) to close at 24,090. The HSI had declined more than 10,000 points from the peak in October 2007 and was in danger of breaching the 21,400 support level, closing 21,757 on 22 January 2008. Since October 2007, the HSI had given up almost all the gains in 2007 which began the year at just over 20,000.

The catalyst was the Fed cutting Fed Funds rate by 0.75% from 4.25% to 3.50%. The Fed Discount rate was cut by the same percentage from 4.75% to 4.00%. The last time the Fed made such a large cut was in August 1982.

The expectation is that the Fed will continue to cut rates aggressively at the meeting next week, perhaps by as much as 0.50%. The Fed is expected to cut rates down to 2.75% by April, and 2.0% by September. How low can it go? The lwest was 1.0% on 25 June 2003.

Will cutting interest rates help? Almost certainly. The problems with providing liquidity to banks through the discount facility is that the banks do not want to borrow. They have sufficient cash. The problem is that they need capital injection because of the book losses they have taken from revaluing the "sub prime loans". By cutting interest rates, the Fed makes it easier for borrowers to keep up their payments. Taken together with the US Government's efforts to negotiate a moratorium on interest vrates re-setting, this will reduce the expected default rate, and allow the banks to start valuing the sub prime based securities at closer to their real value rather than the current "fire sale" levels.

Why didn't the Fed cut by 0.50% in December 2007 instead of the miserly 0.25%? The reason given was that there were still inflation worries, and the Fed wanted to try injecting liquidity directly to banks through the discount facility. That did not really address the problem of pending defaults on sub prime mortgage loans. Only a moratorium on restting interest rates, and a reduction of the rates will achieve the aim of stabilising the market.

The HK market reacted positively to the rate cut. However, we still expect the market to be volatile over the next 6 weeks until the rate cuts take effect. In the short term, we are looking for 27,000 for the near term and up to 34,000 sometime during 2008.

Will Sub Prime Choke Growth in China

The HK stock market fell over 3,000 points over the past 5 days. Yesterday, 16 January 2008, it fell 1,300 points. The HKEx shares fell from a high of HK$268 to HK$170.

There are 2 main factors at work: concerns over the impact of the sub prime crisis in the US, and tightening of monetary measures by the PRC authorities.

Sub Prime Crisis
The sub prime crisis will take some time to work its’ way through. There is a real problem in that the underlying assets may not be as good as it should be because mortgage originators have been cutting corners and lending to unqualified borrowers. However, the extent of the problems in the financial market is magnified by the fact that there is no market for the CDO’s securitized by mortgages regardless of the quality of the underlying assets.

So far, we have seen financial institutions writing off tens of billions of US$. There have been delinquencies in mortgage payments but not to the extent suggested by the financial markets which have over reacted as usual. Just because Merrill Lynch (US$15 billion) and Citigroup (US$18 billion) have had to write off tens of billions of US$, the market is expecting every bank to have to do the same.
JP Morgan has just announced write-offs of less than US$1.3 billion much less than Merrill or Citigroup.

Tightening in China

The Chinese government announced that the banks reserve ratio will be further tighten to 15% in an attempt to rein in inflation. In a mature economy where the deposit base is stable, increasing the reserve ratio will mean less money can be lent out. But in China where the deposit base is growing at double digits, increasing the reserve ratio will very little impact on banks’ ability to lend.
The current impact is temporary and mostly emotive. When banks in China start announcing their results we will see that they continue to expand their lending.
Impact on Exports to the US.

Some people are concerned that exports to the US will fall because the US economy may go into a recession. In looking at exports, we must remember that only a small component of that is value added in China. The rest are raw material and energy costs. Therefore, we cannot compare the entire value of exports to GDP (which measures value added) as some have done.

Using only value added in China, exports are not a large component of GDP. In fact with the Chinese economy expanding at double digits, any shortfall in exports may be made up for by increased domestic consumption.

Conclusion

The present correction represents an opportunity to buy into the market at attractive levels. I particularly like the Chinese financials, and the HKEx.

The Chinese Are Coming! The Chinese Are Coming!

To paraphrase Paul Revere.

Moragn Stanley just announced a 4th quarter loss of US$3.59 billion, the first in its history, and an injection of US$5 billion. But this time, unlike Citigroup (US$7 billion) and UBS (US$10 billion), it is not the Middle-East cavalry that is coming to the rescue. It is the China Investment Corp ("CIC") the Chinese sovereign-wealth investment fund set up to funnel some of the excess trade surplus dollars back into the world market.

The CIC had previously made a US$3 billion investment as a cornerstone investor in the Blackstone Group's IPO. So far, only a minor portion of the earmarked US$200 billion has been used. The sub-prime crisis has single-handedly changed the landscape of international funds flow and ownership. This is a 180 degree turnaround from just a few short months ago, when the US objected to Dubai buying up US Ports, and to China investing in Unocal. Before that, the US also objected to Hutchison a HK listed company investing the Panama Canal on the dubious allegation that it is a defacto proxy of the Chinese Government. Now, Middle East and Chinese money is welcomed with open arms. Money is green and it doesn't matter if the owner is brown or yellow.

Chinese companies have also invested in Standard Bank (ICBC US$5.6 billion), Barclays Bank (China Development Bank US$2.98 billion), and Fortis (Ping An Insurance (US$2.7 billion). Chinese M&A deal flow has been mostly outwards with the top 5 accounting for close to US$20 billion while the top 5 inflows were a measly US$3.8 billion.

Just as the Middle East is recycling petrol dollars, the Chinese are recycling trade dollars.

Waiting For The Fed

The Federal Open Market Committee announced it would cut the federal-funds rate, charged on overnight loans between banks, by a quarter-point to 4.25%. The move met most expectations, although some had hoped for a half-point cut.

The Fed has cut short-term interest rates by a full point since its first move lower this year on Sept. 18. The Fed's accompanying statement mentioned apparently slowing economic growth, as a result of mounting damage from the correction in housing markets, as well as slowing in business and consumer spending. Those who had hoped for a half-point cut to the discount rate were also disappointed. The Fed cut the discount rate, charged on direct loans to commercial banks, by a quarter-point to 4.75%, which left the spread between the two rates unchanged.

To some, the Fed statement seems out of touch with reality and missed an opportunity to bolster confidence in the credit markets.

The accompanying guidance was difficult to interpret. It did not address the balance of risks between growth and inflation and appears to be a compromise with the inflation hawks. Although it did mention slowing growth, but it also said that "some inflation risks remain" because of energy and commodity prices. The language about inflation risks was identical to language in the last FOMC statement.

Is the Fed for real? It doesn't seem to know that the market is very weak and expectations are what is driving the market.

Markets reacted badly. The Dow Jones Industrial Average fell 294.26, or 2.1%, to 13432.77.

How To Fix The Sub Prime Mess?Lessons From The Asian Financial Crisis

The Bush Administration is proposing to freeze the resets on sub prime loans in order for borrowers to be able to continue to pay their mortgages. This of course is politically expedient. But is it good economics, some ask. Many have condemned the proposal as going against the original spirit of the contract and therefore will undermine the competitiveness of the US dollar as a store of value, and the attractiveness of the US economy as the storehouse of wealth.

The argument is that if the rate on sub prime loans are capped, then the investors will suffer (i.e. get less interest than they expected) and borrowers will therefore benefit (i.e. pay less than they would have). Who would then buy US assets?

This is a "prime" example of classroom theorising vs. market savvy. We are often bombarded by learned commentators, professors and such like, that it's "Economics 101", as if the label itself gives it credence just like the pieces of parchment on their walls. My answer is it's "Market Behaviour 101" that matters.

By capping the rate on sub prime loans, lenders will be able to keep receiving payments. It's the income stream that matters. The alternative is that borrowers will just give up and hand the properties back. The banks will then have to try to sell the properties into a weak market, get much less than their original principal, and write-off the difference.

The recent price paid by a hedge fund for e-Trade puts this at about 35 cents on the dollar. Less me ask you, would you prefer to get 95 cents (by foregoing some interest) or 35 cents. Mind you, the increase of interest on reset was not a "sure thing", i.e. the borrower has the option to repay or refinance. Who knows, if this had not blown up, they may have been able to refinance. So the lenders are only giving up something which had a theoretical value which they may or may not have counted on in the first place. They may actually have expected the borrower to refinance and get the loans off their books.

So what are we asking them to do by capping the rates? Only that they refinance the loans at some thing close to the market rate and not punitive.

During the Asian Financial Crisis, the HK government was castigated by many "free market" thinkers for intervening in the stock market to stop speculators using it as a proxy for shorting the HK dollar. Similarly, the Malaysian government was pillored for imposing exchange controls. In both cases, the governments saw the need to protect the local economy from excessive outside intervention and took the appropriate steps. The current strength of the economies belie the dire predictions of the "learned" community.

Text books on economics are written after the fact. Different people will extract and interprete facts in different ways. In time, some of these lessons will be "Economics 101". People tend to forget the market is made up of individuals who are prone to the emotions of fear and greed.

When "sub-prime" loans were the thing to be in, the captains of our financial industry were greedily fighting their way to the "feeding troughs" to get a piece of the action, afraid of losing out. In the now famous words of a certain Mr. Prince, previously of Citigroup, "When the music starts, you have to dnace". Now that "sub-prime" is a pariah, the vultures are waiting for the carcass to rot (i.e. they want 35 cents on the dollar) and trying to scare off anyone who wants to take the not yet dead bodies away for treatment by saying "let nature takes its' course, let them die!"

That's "Market economics 101". Sometimes, it is necessary to take some action that the "pure" economists abhor. Let's try and save what we can. The alternative is that we will be faced with a bigger problem of a collapse as borrowers renege, banks start writing off bad debts, and the credit crunch becomes a black hole.

Looking For 2 Rate Cuts From The Fed

Asian markets finished mixed, with Tokyo stocks edging lower. Hong Kong gaining on hopes of a U.S. interest-rate cut.

Market Indices
Australia All Ordinaries 6588.80 - 0.13%
Bombay Sensex* 19529.50 - 0.38%
Hong Kong Hang Seng 28879.59 + 0.77%
Japan Nikkei 15480.19 - 0.95%
Shanghai Composite 4915.88 + 0.97%
Singapore STI 3527.87 + 0.18%
South Korea Composite 1917.83 + 0.81%
Taiwan Weighted 8651.28 + 0.79%

*Late trading

HK Continues To Move Up

Asian shares ended mixed. Profit-taking drove Tokyo and Shanghai lower, while Hong Kong advanced on strong blue chips buying in anticipation of the Fed lowering interest rates..

China Railway shares surged 69% on their Shanghai debut, on expectations China's infrastructure demand will remain robust in coming years. This augurs well for the H-share debut in HK on Thursday.


Market Indices
Australia All Ordinaries 6597.20 + 0.05%
Bombay Sensex* 19587.36 + 1.16%
Hong Kong Hang Seng 28907.77 + 0.92%
Japan Nikkei 15628.97 - 0.33%
Shanghai Composite 4868.61 - 0.07%
Singapore STI 3558.61 + 1.06%
South Korea Composite 1902.43 - 0.19%
Taiwan Weighted 8583.84 - 0.03%

*Late trading

Asian Markets Continues Strength

Asian markets finished mostly higher, as shares rose on expectations of a U.S. interest-rate cut.

Market Indices
Australia All Ordinaries 6593.60 + 1.33%
Bombay Sensex* 19363.19 + 1.89%
Hong Kong Hang Seng 28643.61 + 0.57%
Japan Nikkei 15680.67 + 1.08%
Shanghai Composite 4871.77 - 2.63%
Singapore STI 3521.27 + 1.24%
South Korea Composite 1906.00 + 1.51%
Taiwan Weighted 8586.40 + 1.65%

*Late Trading

Sub Prime Fatigue Sets In

The US market closed last night up 331 or 2.6% to 13290, a two-day rally of more than 500 points. Wednesday's buying frenzy was sparked by fresh hopes of a Fed rate cut, signs of life in the battered financial sector and plunging oil prices dwon $4 to $90.

The Fed said that the economy looks weak and that housing will not recover until late 2008. One of the Fed governors also said that the Fed must be flexible on interest rates. This is seen as code words that the Fed will cut interest rates aggressively.

All that, and SUB PRIME FATIGUE. It seems that daily one bank or another is setting aside provisions for sub prime based securities. It's gotten to the stage that if you do not announce provisions, the company is immediately suspect. Think about it! If everyone around you are taking US$8 billion provisions, you would be a fool not to take a similar amount even if you don't need it or need a lower number. You can always write it back when the market becomes more sane, and take a big bonus in that year. If you don't take a big enough number now, and come back for more later, your job is on the line.

Asian stocks rallied, tracking an overnight surge on Wall Street amid hopes of another interest-rate cut. Hong Kong and Shanghai both finished more than 4% higher.

Market Indices
Australia All Ordinaries 6507.20 + 1.16%
Bombay Sensex* 19003.26 + 0.34%
Hong Kong Hang Seng 28482.54 + 4.06%
Japan Nikkei 15513.74 + 2.38%
Shanghai Composite 5003.33 + 4.16%
Singapore STI 3478.22 + 3.22%
South Korea Composite 1877.56 + 2.34%
Taiwan Weighted 8447.03 + 2.06%

*Late trading

Yoyo Market

Asian markets finished mostly lower Wednesday, with oil companies and blue chips weighing on Japan's benchmark index, snapping a three-day winning streak. However, HK finished up slightly after to-ing and fro-ing all day. We expected the index to open higher and it did by about 120. Then it dipped into negative territory, and went back and forth. If not for the weakness in HSBC (#5) we would have finished up higher especially with the US up 215 overnight.

Bank of China (#3988) is still weak after Temasek the Singapore Government investing arm sold 5% of its' holdings. It seems to me that now may be a good time to buy BOC.

Other Mainland companies looking for cornerstone investors may now have second thoughts about the investment horizon of Temasek.

Market Indices
Australia All Ordinaries 6432.80 - 0.94%
Bombay Sensex* 18942.84 - 0.97%
Hong Kong Hang Seng 27371.24 + 0.59%
Japan Nikkei 15153.78 - 0.45%
Shanghai Composite 4803.39 - 1.19%
Singapore STI 3369.72 - 0.09%
South Korea Composite 1834.69 - 1.35%
Taiwan Weighted 8276.26 - 1.19%

*Late trading

Black Monday Follows Black Friday

In the US, the Friday after Thanksgiving is known as "Black Friday". The market reacted quite well, and HK followed suit yesterday going up more than 1,000. But last night, amid concerns about the fall out from sub prime, credit woes and recession fears, the Dow industrials tumbled roughly 240 points, more than erasing their bounce on Black Friday. The financial sector was particularly hard-hit, with Citigroup sinking 6% to less than $30 a share and Goldman Sachs off 4%. The yield on the 10-year Treasury note plunged to a two-year low.

Asian markets followed the US lead down, though Tokyo and South Korea recovered from early losses to finish higher.

Market Indices
Australia All Ordinaries 6493.60 - 0.61%
Bombay Sensex* 19143.32 - 0.54%
Hong Kong Hang Seng 27210.21 - 1.51%
Japan Nikkei 15222.85 + 0.58%
Shanghai Composite 4861.11 - 1.97%
Singapore STI 3372.64 - 1.34%
South Korea Composite 1859.79 + 0.24%
Taiwan Weighted 8375.76 - 1.79%

*Late trading

November 26, 2007

Most Asian markets rallied, as investors took heart from rosy U.S. shopping figures. Hong Kong surged 4.1% and Seoul soared 4.7%.

Market Indices
Australia All Ordinaries 6533.20 + 2.20%
Bombay Sensex* 19247.54 + 2.09%
Hong Kong Hang Seng 27626.62 + 4.09%
Japan Nikkei 15135.21 + 1.66%
Shanghai Composite 4958.84 - 1.46%
Singapore STI 3418.58 + 2.79%
South Korea Composite 1855.33 + 4.65%
Taiwan Weighted 8528.33 + 2.23%

*Late trading

The Thru Train Stops

Trading throughout the week was weak as the double whammy of sub prime problems in the US, and the news that the Chinese government is turning off the illegal funds flow dominated the news.

Apparently, the Shenzhen Branch of the PBOC (people's Bank of China, the Central Bank) instructed the Shenzhen Banks to limit the amount of cash that can be withdrawn by customers to try and stem the flow of illegally remitted funds to HK. The Mainland authorities were concerned that Chinese ccitizens were abandoning the Mainland market for HK where the same shares can be bought at a lower price.

The thru train (where chinese citizens will be allowed to invest directly in the HK market) has now been put back with no date. This is apparently caused by concerns that the Mainland investors are not sophisticated enough to play in the open HK market against foreign hedge funds who will offload shares to them at a high price. Hmm, interesting concept that. They can buy the same shares of dual listed companies in HK at a lower price than in China but we are still worried that they are buying them at too high a price in HK?

I guess since HK is an open market, the hedge funds can take their money and run which is not possible on the Mainland since China is a closed market. However that still leaves the investor with shares that are still cheaper than what they have to pay for them on the Mainland.

Uncle 4 Strikes Again!

After the yo-yo gyrations of the past few days. yesterday provided some relief as the HK market gained some precious ground. This time, it's because Uncle Four (aka Mr. Lewe Shau Kww) our local "Warren Buffet" told reporters that he thinks the market will still finish the year around 30,000, and he is putting some HK$10 billion into it.

Market Indices
Australia All Ordinaries 6392.40 - 0.04%
Bombay Sensex* 18852.87 + 1.76%
Hong Kong Hang Seng 26498.13 + 1.90%
Japan Nikkei** 14888.77 + 0.34%
Shanghai Composite 5032.13 + 0.96%
Singapore STI 3315.57 + 0.08%
South Korea Composite 1772.88 - 1.45%
Taiwan Weighted 8342.20 - 1.85%

*Late trading
**Closed for holiday

Crude Oil at US$99 Per Barrel

Asian markets were mostly lower. Hong Kong and Shanghai shares felled on U.S. economic concerns and a broader decline in Chinese markets.

Crude-oil futures broke above $99 a barrel in early trading yesterday, and energy analysts see little to reverse the trends that have sent crude on its record breaking spree.

The weakening U.S. dollar, the currency used to buy and sell oil globally, is helping reinforce the notion that oil prices could remain high. The dollar sank to a new low against the euro yesterday on pessimism about the American economy and speculation the U.S. will cut interest rates again. Combined with strong global energy demand, the market appears willing to bear prices that would have shocked many in months past.

The survey of energy analysts did say, however, that prices would simmer down at the end of 2008, as the world's richest economies begin to slowdown.

Market Indices
Australia All Ordinaries 6395.10 - 0.85%
Bombay Sensex 18526.32 - 0.40%
Hong Kong Hang Seng 26004.92 - 2.30%
Japan Nikkei 14888.77 - 0.34%
Shanghai Composite 4984.16 - 4.41%
Singapore STI 3312.88 - 1.03%
South Korea Composite 1799.02 - 0.44%
Taiwan Weighted 8499.37 + 0.18%

It's the US Economy Now, Is It?

Asian stocks fell sharply at concerns that the U.S. economy, the most important export market for many of the region's companies, would continue to weaken.

Market Indices
Australia All Ordinaries 6450.20 - 0.62%
Bombay Sensex * 18602.62 - 3.52%
Hong Kong Hang Seng 26618.19 - 4.15%
Japan Nikkei 14837.66 - 2.46%
Shanghai Composite 5214.22 - 1.50%
Singapore STI 3347.20 - 2.65%
South Korea Composite 1806.99 - 3.49%
Taiwan Weighted 8484.11 - 2.27%

*Intraday

You Win Some, and Lose Some

Asian stocks and currencies regained some ground in a late-session sentiment shift, with currency moves highlighting an easing of the risk aversion that earlier weighed on markets.

Market Indices
Australia All Ordinaries 6490.20 - 1.68%
Bombay Sensex* 19506.84 - 0.64%
Hong Kong Hang Seng 27771.21 + 1.13%
Japan Nikkei 15211.52 + 1.12%
Shanghai Composite 5293.70 + 0.45%
Singapore STI 3438.27 + 0.78%
South Korea Composite 1872.24 - 1.12%
Taiwan Weighted 8680.86 + 0.00%

*Intraday

Chinese Regulators Order Lending Freeze

The Dow industrials tumbled more than 1.5% to close below 13000 for just the second time since August 16, dragged down by fresh worries about the housing and credit markets.

Asian markets ended mostly lower. Hong Kong stocks declined on concerns related to fund inflows from mainland China.

In an attempt to halt the rampant investment that is threatening to overheat the world's fastest growing major economy, Chinese regulators, over the past few weeks, have ordered commercial banks to freeze lending through the end of this year.

A China Banking Regulatory Commission official in Shanghai confirmed that local and Chinese subsidiaries of foreign banks have been requested to ensure that loans outstanding at year end don't exceed Oct. 31 levels.

Beijing's options are limited. Raising interest rates would lift the level of its currency, the yuan, to levels that exporters might find uncomfortable.

The lending freeze may, among other things, weaken earnings of key companies listed on the stock market and leave less cash in the financial system that might flow into the market.

Market Indices
Australia All Ordinaries 6601.30 + 1.15%
Bombay Sensex * 19633.36 - 0.33%
Hong Kong Hang Seng 27460.17 - 0.56%
Japan Nikkei 15042.56 - 0.74%
Shanghai Composite 5269.81 - 0.87%
Singapore STI 3411.72 - 0.85%
South Korea Composite 1893.47 - 1.70%
Taiwan Weighted 8680.71 - 0.96%

*Intraday

Curbs on Illegal Funds Flow

Asian markets fell, with Hong Kong plummeting 3.95% on worries that China is cracking down on illegal fund outflows into the city's stock market.

Market Indices
Australia All Ordinaries 6526.10 - 1.04%
Bombay Sensex* 19698.36 - 0.44%
Hong Kong Hang Seng 27614.43 - 3.95%
Japan Nikkei 15154.61 - 1.57%
Shanghai Composite 5316.27 - 0.91%
Singapore STI 3440.96 - 1.05%
South Korea Composite 1926.20 - 1.11%
Taiwan Weighted 8764.82 - 1.58%

*Late trading

Wall Street Sneezes and We All catch A Cold

Asian markets ended lower following declines on Wall Street. Expectations of rising interest rates in China weighed on Hong Kong and Shanghai shares.

Market Indices
Australia All Ordinaries 6594.40 - 0.84%
Bombay Sensex* 19784.89 - 0.72%
Hong Kong Hang Seng 28751.21 - 1.42%
Japan Nikkei 15396.30 - 0.67%
Shanghai Composite 5365.26 - 0.88%
Singapore STI 3477.59 - 1.34%
South Korea Composite 1947.74 - 1.26%
Taiwan Weighted 8905.41 - 0.42%

*Late trading

End of Correction? That is the Question!

The US market rose 316 overnight and HK went up 1,362 to close at 29,166 on HK$149 billion turnover. China Mobile up 9% and accounted for 363 points of the rise.

Property counters were all up except for New World Properties which fell against the trend. Mongolian Energy #276 fell 16% from $13.80 to $11.56 after rising as high as $14.42 and then falling to as low as $9.60 before recovering near the close.

Market Indices
Australia All Ordinaries 6650.00 + 1.20%
Bombay Sensex* 19868.18 + 4.37%
Hong Kong Hang Seng 29166.01 + 4.90%
Japan Nikkei 15499.56 + 2.47%
Shanghai Composite 5412.69 + 4.94%
Singapore STI 3531.45 + 1.61%
South Korea Composite 1972.58 + 2.05%
Taiwan Weighted 8942.93 + 2.47%

*Late trading

Yen broke 110 to the Dollar

Hong Kong ended 3.88% lower, Tokyo dropped about 2.5% and Shanghai shed more than 2. The dollar briefly fell below ¥110 before regaining ground. But the damage has been done. The market is waiting for the unwinding of the Yen carry trade.

Market Indices
Australia All Ordinaries 6523.30 - 1.27%
Bombay Sensex* 18669.20 - 1.26%
Hong Kong Hang Seng 27665.73 - 3.88%
Japan Nikkei 15197.09 - 2.48%
Shanghai Composite 5187.73 - 2.40%
Singapore STI 3510.95 - 2.46%
South Korea Composite 1923.42 - 3.37%
Taiwan Weighted 8670.61 - 3.35%

*Late trading

HK Hit with Aftershocks

The HK market took a big hit as the US market dropped 360 last night. After falling over 1,000 points, the market clawed its way back to close down 3%. Not a bad result considering. However, the exchange's processing capacity is more worrying.

Yesterday, all brokers reported a massive slowdown in the exchange's computer system when entering orders for Alibaba's trading debut. Some orders were left in limbo for up to 10 minutes waiting on the exchange's system to process them.

Unfortunately, during this period, we were unable to amend or cancel the orders. All we had was a message that the order was under processing. When the order was finally processed, the price may have moved beyond the specified range resulting in the order being rejected after sitting in the processing queue. Then it had to be re-entered again.

The entire issue can be avoided by increasing the size of the order queue. This is especially important after the trading spreads were narrowed and shares often trading beyond the 24 spread range. the resulting re-input and processing of orders increased the demand on processing cycles and increased line traffic. Technically, the exchange's order processing system did not slow down. By limiting the order procesing queue, the workload was pushed back into the communications network and the participants' own systems. The result is that market depth is reduced and orders have to be input many times before they can be executed. From the exchange's standpoint, increasing the capacity will mean more trades execution and bigger profits. Let's get this fixed as soon as possible.

Market Indices
Australia All Ordinaries 6568.50 - 2.37%
Bombay Sensex* 19058.93 - 1.20%
Hong Kong Hang Seng 28760.22 - 3.19%
Japan Nikkei 15771.57 - 2.02%
Shanghai Composite 5330.02 - 4.85%
Singapore STI** 3673.01 - 0.27%
South Korea Composite 1979.56 - 3.11%
Taiwan Weighted 8937.58 - 3.90%

*Late trading
**Closed for holiday

Marking Time ....

HK opened strong but succumbed to some profit taking. it still managed to close up for the day. Over the last 2 days, we have recovered half of the 1,500 point loss on Monday. It seems that with the availability of information over the internet, TV etc. the markets adjustments are shorter in duration but bigger in fluctuations. This is to be expected as everyone now have access to the news at virtually the same time.

Market Indices
Australia All Ordinaries 6728.10 + 1.04%
Bombay Sensex* 19274.16 - 0.65%
Hong Kong Hang Seng 29708.93 + 0.92%
Japan Nikkei 16096.68 - 0.98%
Shanghai Composite 5601.78 + 1.18%
Singapore STI 3673.01 - 0.27%
South Korea Composite 2043.19 - 0.54%
Taiwan Weighted 9300.22 + 0.08%

*Late trading

Steady Does It

The HK market kept an even keel and managed to claw back some of the losses from yesterday. Investrors were still jittery and some have obviously decided to take some money off the table now that the "thru train" appears to have been delayed.

A series of bad news came out over the weekend when Wen Jia Bao said that the thru train will need further swtudy to ensure it does not adversely affect the Chinese market. The concern there is that too much money will leave the Shanghai market causing a crash on the Mainland.

The CSRC also reminded funds that they are to invest no more than 30% in any one market. Again, this is clearly aimed at curbing the flow of money to HK because currently, QDII funds are only allowed to invest in 1 overseas market and that is HK. There appears to be a big worry that Chinese investors will be buying into HK just in time for foreign investors to cash out, and be left holding over priced shares. This seems a bit rich because the H-shares traded in HK are a a deep discount to the corresponding A-shares in China. For example, PetroChina trades at a 150% premium to HK. Shares in HK are still cheap compared to China.

The main worry is that foreign investors will take advantage of gullible Chinese investors to off load their shares. Let them off load their shares if they want to. The story is China and they cannot afford not to buy in at the start.

Going back to PetroChina. This is definitely overvalued on the Mainland market. It is twice the market capitalisation of Exxon although it earns half the profits and have half the reserves. It is valued at 54x forecast earnings vs. Exxon 13x. Even the HK shares are over valued at 22x. Even if it manages to double the reserves and profits, it should only then be wirth as much as Exxon because oil is an international commodity.

Another story today is the listing of Alibaba. The IPO price was HK$13.50. The shares traded on the grey market yesterday at around HK$25. It opened at HK$32. Traded briefly below HK$30 and then went as high as HK$39.50 before closing slightly lower. At HK$13.50 it listed at 55x forward earnings. People expect this to the Chinese Google. There are some differences. Google is a consumer to consumer platform while Alibaba is business to business. There are a lot more consumers than there are businesses. If it is so great a deal, why have the strategic investors decided to cash out by selling their shares?

PetroChina: World's Biggest Company By Market Capitalisation

PetroChina's shares tripled in value on trading debut in Shanghai. It surged past Exxon Mobil to become the world's most highly valued company by market capitalization. But is this a true value?

If we applied the share price of PetroChina Co. on the Shanghai Stock Exchange to the whole of the company, China's major oil and gas producer would have a market cap of around $1.08 trillion, making it the world's biggest company. But only a mere 2.2% of its share capital is sold in the Chinese IPO and about 86% of its shares are still held by the state-owned parent.

Since very few shares are publicly traded spread -- scarcity that can drive up prices. If we were to value the company by tradeable shares the total value of PetroChina's publicly traded shares would be about $72.5 billion. In addition, PetroChina's Class A shares in China are trading at around 50 times this year's forecast earnings, compared with 20 times earnings for its Hong Kong-listed stock. Big oil companies average of 10 times forecast earnings internationally.

As I have said before, Exxon has higher reserves than PetroChina. Enough said.

Detour of the Thru Train

The HK market has been running ahead of itself when it was announced in mid August that the Bohai Branch (Tianjin City) of the Bank of China will be allowed to trade HK stocks for Chinese investors. We were anticipating that all of China can invest in HK stocks either thru the BOC or some other bank as we had expected that other banks will be allowed into the scheme. The announcement put paid to that as it was originally set up as an "experiment" in Tianjin only. The Chinese authorities got cold feet after seeing the response. They were afraid that all chinese investors will go to HK and the China stock market will fall. Stocks that are listed inbothe HK and china, trade at a 60% premium in China.

There is also some turf wars as the tianjin experiemnt was announced by the China Banking Regulatory Commission and the China Securities Regulatory Commission got very upset and warned everyone that it could bring the chinese market down. Of course no one wanted to be the one responsible for causing the collapse of the chinese market and so everyone backed off. The end result may be the collapse of the HK market.

Market Indices
Australia All Ordinaries 6620.10 - 1.58%
Bombay Sensex* 19590.78 - 1.93%
Hong Kong Hang Seng 28942.32 - 5.01%
Japan Nikkei 16268.92 - 1.50%
Shanghai Composite 5634.45 - 2.48%
Singapore STI 3670.18 - 1.21%
South Korea Composite 2015.76 - 0.18%
Taiwan Weighted 9308.60 + 0.38%

*Late trading

Citigroup Worries the Street

The Dow industrials closed down 362.14, or 2.6%, at 13567.87, slammed by fresh credit worries a day after the Fed rate cut. The financial sector led the selloff, with Citigroup down nearly 7% and J.P. Morgan and AIG each off 6%. Exxon Mobil's shares slid 3% after its below-forecast earnings. The Nasdaq ended the day 2.25% lower, and the S&P fell 2.6%, its worst day since early August. Oil fell more than $1 a barrel.

In spite of HK banks cutting interest rate, the HK market followed the US by dropping 1,024 points to 30,468 just managing to hold on above 30,000. Turnover was not particularly high at HK$154 billion.

Asian markets fell sharply, as investors digested fresh evidence of a weakening U.S. economy and the prospect that they can't count on further support from the Federal Reserve.

Market Indices
Australia All Ordinaries 6726.70 - 1.85%
Bombay Sensex* 19960.68 + 1.20%
Hong Kong Hang Seng 30468.34 - 3.25%
Japan Nikkei 16517.48 - 2.09%
Shanghai Composite 5777.80 - 2.31%
Singapore STI 3715.32 - 2.32%
South Korea Composite 2019.34 - 2.12%
Taiwan Weighted 9273.09 - 3.39%

*Intraday trade

The Waiting Game

The HK market opened fairly strong but eventually fell back. The hope of a 50 basis point cut was over optimistic. At the end of the trading day the HSI rose 140 to 31,492.

Will the HKAB follow through on rate the cut? It seems almost certain that they will. Yesterday, the HKMA injected HK$7.8 billion to mop up excess US$ as too much liquidity was flowing in to HK. With the US$ weakening, and the RMB expected to increase at the rate of at least 2% p.a. we are seeing a replay of using the HK stock market as a proxy for the currency (remember the hedge funds attack on the HK$ in 1998?) except this time it is the reverse. Since foreign investors cannot buy RMB or A-shares on the Mainland, they are opting to buy H-shares (Chinese companies listed in HK)as a proxy for the RMB since their assets and income streams are in RMB.



Market Indicies
Australia All Ordinaries 6853.60 + 1.10%
Bombay Sensex* 19724.35 - 0.57%
Hong Kong Hang Seng 31492.88 + 0.45%
Japan Nikkei 16870.40 + 0.79%
Shanghai Composite 5914.28 - 0.68%
Singapore STI 3803.56 - 0.06%
South Korea Composite 2063.14 - 0.08%
Taiwan Weighted 9598.23 - 1.17%

*Late trading

Greenspan Redoubt! Irrational Exuberance?

The HK market consolidated in advance of the Fed meeting dropping 285 to 31,352. There were hopes that the Fed would cut 50 basis points but that proved to be overly optimistic. In any event, the Fed cut was 0.25% to 4.5%, and discount was cut to 5%. The US marklet softened initially but came back with 137 point rise.

Market Indices
Australia All Ordinaries 6779.10 + 0.10%
Bombay Sensex* 19837.99 + 0.28%
Hong Kong Hang Seng 31352.58 - 0.90%
Japan Nikkei 16737.63 + 0.52%
Shanghai Composite 5954.76 + 0.98%
Singapore STI 3805.70 + 0.19%
South Korea Composite 2064.85 + 0.61%
Taiwan Weighted 9711.37 - 0.48%

*Late trading

HK New High!

HK closed on a new high, again! And this time, the property stocks suffered a sell off in the afternoon on fears of fund raising via placements (SHK Properties placed HK$11 billion yesterday after the market close). HK and Shanghai were the only 2 markets in Asia to close higher.

The Chinese financials did very well again today, especially China Construction Bank. The word on the street is we are looking at HK$10.

Market Indices
Australia All Ordinaries 6772.50 - 0.52%
Bombay Sensex* 19783.51 - 0.97%
Hong Kong Hang Seng 31638.22 + 0.16%
Japan Nikkei 16651.01 - 0.28%
Shanghai Composite 5897.19 + 2.60%
Singapore STI 3798.45 - 0.56%
South Korea Composite 2052.37 - 0.51%
Taiwan Weighted 9757.93 - 0.52%

*Late trading

HS Index up 1,181!

The HK market set another new high today rising 1,181 points (3.89%) to close at 31,586 on turnover of HK$178 billion. Shanghai rose 165 (2.83%) to close at 6,034. Shares throughout the region rose on the back of a 134 points rise in the DJIA last Friday and Nikkei's increase of 192 today.

In HK the property stocks led the advance on expectations that the Fed will continue to cut interest rates further with some expecting a 50 basis point cut.

Market Indices
Australia All Ordinaries 6808.20 + 1.37%
Bombay Sensex* 19977.67 + 3.82%
Hong Kong Hang Seng 31586.90 + 3.89%
Japan Nikkei 16698.08 + 1.17%
Shanghai Composite 5747.99 + 2.83%
Singapore STI 3819.78 + 1.28%
South Korea Composite 2062.92 + 1.72%
Taiwan Weighted 9809.88 + 1.85%

*Late trading

ICBC = I Can Buy Chinese (But Carefully!)

At the 12th Asia Securities Forum in Cebu, Philippines in March this year, I gave a presentation on the HK Securities Market which covered the listing of Chinese companies. At that time, I out up a slide that says ICBC (not Industrial and Commercial Bank of China but I Can Buy Chinese) as my prediction of where the market was going.

Since then of course, the HSI has hit a historical high of 30,400 moving up in leaps and bounds but still lagging the Shanghai market. Let there be no misunderatnding. HK is the proxy market for China. The Shanghai and Shenzhen markets are closed to foreigners except through QFII (Qualified Foreing Institutional Investors programme) which has a tiny US$10 billion quota shared by 50 institutions (the recent turnover in HK is between US$15-20 billion per day with a historical high of US$25 billion).

If you buy the China Story then you have to buy in HK. About 60% of the market value and 75% of the daily turnover are in Chinese stocks. The Gulf States' national budgets were based on US$35 per barrel. Now that oil is US$85, where is all that excess cash going? Certainly not to the US. Of the BRIC countries (Brazil, Russia, India, China) China has the most compelling story and the most advanced market through it's proxy in HK. When I visited ADIA (Abu Dhabi Investment Authority, the earliest and biggest Middle Eastern government investment fund) early this year, I was surprised to see Chinese nationals sitting across the table. They were hired by ADIA out of the China to research Chinese stocks.

Having said all that, I am always asked what companies to buy. My answer has always been the Chinese financials. Don't get me wrong, they are probably not the hottest thing around but in my mind they are the safest. What other in dustry has regulators sitting on top to ensure that things do not go badly wrong?

I cannot say the same for Chinese resource companies.

Recently, Chinese resource companies have been bid sky high. I am not convinced that they are worth the valuations. The market is huge, that much I agree. But resource companies are valued on the basis of their reserves and the price of their products. On the basis of reserves, the Chinese resource comapnies are valued at double their western counterparts. Do we expect their existing reserves or the prices to suddenly double?

Warren Buffett recently sold Berkshire Hathaway's 1.3% stake in PetroChina (#00857), China's largest oil company (an the largest company in China on market value). At about US$440 billion, it is the world's No. 2 company based on market value, behind ExxonMobil's $508 billion valuation. PetroChina trades for more than 20 times estimated 2007 profits, or twice its historic price/earnings multiple (Exxon's P/E is 13x and other Western oil companies such as Chevron and ConocoPhillips trade at around 10x). Berkshire bought its stake four years ago for less than US$500 million, and may have made as much as US$4 billion on the sale.

Although huge valuation gaps between Chinese and U.S. companies exist outside the resource sector, I am more relaxed because the pebetration of financial products is miniscule. China Life Insurance (LFC) has a market value of $245 billion, five times that of MetLife or Prudential Financial.

However, we cannot apply the same arguments to resource companies in China because oil and coal are fungible international commodities. Also, it is difficult for Chinese resource companies to buyout Western resource companies because of politics. US Congressional opposition frustrated an attempted takeover of Unocal by China's state-owned oil company in 2005; Unocal later was sold to Chevron.

The key to high stock-market values in China is that ordinary Chinese investors have little choice because of capital restrictions on investing overseas and the scarcity value created by the thin floats in many big Chinese companies. PetroChina, now 88%-owned by the Chinese government, will sell Chinese investors US$9 billion of Class A shares to be listed on the Shanghai Stock Exchange. But the government's stake will slip only to 86%. Until now, PetroChina's shares have traded only in Hong Kong and as ADRs on the New York Stock Exchange. If all the company's shares were freely held, PetroChina would not command such a high valuation.

Since Chinese investors cannot buy Western stocks, comparison between PetroChina and Exxon is only useful for Western investors who can buy both. PetroChina is listed in HK and trades at more reasonable value precisely because HK is an open market with no capital or investors restrictions.

The only thing going for PetroChina is that its profits are depressed by price controls in the Chinese market for gasoline, other oil products and natural gas. The company gets about $3 per thousand cubic feet of natural gas, half of what Exxon nets. The gradual lifting of price controls in China will boost PetroChina's refining and natural-gas profits but prices will have to double before PetroChina and Exxon trades at similar PE's.

St. Louis-based Peabody Energy, the world's largest private-sector coal producer, trades at 30 times earnings while China Shenhua trades at 60x. China's largest coal company, China Shenhua Energy (#01088), is valued at $200 billion. When China Shenhua was listed in Shanghai earlier this month, its share price doubled in value. It since has risen to RMB 77 per share. China Shenhua, which already was listed in Hong Kong, now has a market value of about $190 billion, more than 10 times Peabody's value. Yet its annual production and reserves are less than Peabody's. But China Shenhua gets far higher prices for its coal than Peabody, and has power and railroad assets.

Hang Seng Index at historical high 30,405

Finally we broke through the 30,000 resistance level, and resoundingly so by rising 550 points to 30,405. The hope is that the Federal Reserve will cut interest rate by 50 basis points because of the bad news coming out of the US.

The HK dollar moved to the string side of the peg against the US dollar because of the inflows of funds into HK. Most of this is destined for the stock market as a proxy for the RMB since the chinese currency is not convertible. The H shares have assets in RMB and earn RMB.

Market Indices
Australia All Ordinaries 6716.40 + 1.08%
Bombay Sensex* 19243.17 + 2.52%
Hong Kong Hang Seng 30405.22 + 1.84%
Japan Nikkei 16505.63 + 1.36%
Shanghai Composite 5589.63 + 0.49%
Singapore STI 3766.82 + 1.61%
South Korea Composite 2028.06 + 2.60%
Taiwan Weighted 9631.51 + 0.66%

*Intraday trading

Reversal of Fortunes?

Hong Kong closed at a record high, but Shanghai plunged on interest-rate worries and concerns that the central government will clamp down on inflation.

Market Indices
Australia All Ordinaries 6644.80 - 0.11%
Bombay Sensex* 18770.89 + 1.39%
Hong Kong Hang Seng 29854.49 + 1.78%
Japan Nikkei 16284.17 - 0.45%
Shanghai Composite 5562.39 - 4.80%
Singapore STI 3707.14 + 1.59%
South Korea Composite 1976.75 + 2.24%
Taiwan Weighted 9568.26 + 1.33%

*Intraday trading

29,997: So near and yet so far.

The HK market opened strong on the back of a 109 point rise on the DJIA overnight. The HSI got within 29,997 before retreating from the pyschological barrier of 30,000 finishing in negative territory.

Market Indices
Australia All Ordinaries 6652.10 - 0.38%
Bombay Sensex* 18602.52 + 0.59%
Hong Kong Hang Seng 29333.53 - 0.15%
Japan Nikkei 16358.39 - 0.56%
Shanghai Composite 5843.10 + 1.21%
Singapore STI 3666.28 - 0.79%
South Korea Composite 1933.36 - 0.75%
Taiwan Weighted 9442.62 - 0.63%

*Intraday trading

HK UP 1,003

This is a market in transition. It can't decide whether it is too high or whether it is poised for further gains. After the correction yesterday the market was up 3.54% to finish at 29,376 virtually unchanged from Thursday last. Current month futures closed at 29,481 (a premium of over 104), and next month futures closed at 259,525 (a premium of 148).

Chinese financials staged a recovery. I must admit I am partial to the Chinese banks and insurance companies. They have regulators (CBRC and CIRC) sitting on top of them to make sure they don't go too far off track, and they can legitimately profit from the stock market rise. Just imagine buying into HSBC in 1971 at HK$4 and holding until now. Well, you can dream on or you can buy the Chinese banks.

HK Stocks Dropped 1,091 points

As expected the HK market followed the US down. However, the drop was actually less than expected being only 3.7%. Compared with 26 Ocotber 1987 when the market fell 45% when it re-opened after a 4 day clsosure, and 10% on 23 october 1997 this was literally a drop in the bucket.

Market Indices
Australia All Ordinaries 6592.10 - 1.95%
Bombay Sensex* 17441.30 - 0.68%
Hong Kong Hang Seng 28373.63 - 3.70%
Japan Nikkei 16438.47 - 2.24%
Shanghai Composite 5667.33 - 2.59%
Singapore STI 3642.64 - 2.81%
South Korea Composite 1903.81 - 3.36%
Taiwan Weighted 9360.63 - 2.61%

*Intraday trading

October 19, 1997: Then and Now

Yesterday was the 20th anniversary of the Black Monday Crash of 19 October 1997. Right on cue the US market fell 366 points. Are we looking at a repeat of the crash. I think not.

There are some similarities but the differences are very significant.

1. On 19 October 1997, the market crashed 22.6% (508 points0 in 1 day. This time, the drop was only 2.6%.

2. Back then the average P/E was 22x and treasury bonds were yielding 10%. Now the average P/E is 18x and Treasuries are yielding only 5%.

3. In 1997, the US$ was under attack and in order to counteract rate rises by the Bundesbank (which was fighting inflation in Germany) the Federal reserve had to raise interest rates. Now, the Fed is cutting interest rates to offset the effects of the sub-prime mess. So are all the other central banks.

One final point, even if the market falls, remember that 18 months later, the market was back up to where it was before the crash. Sit tight.

HK market was closed for a holiday on Friday 19 October 2007. The Shanghai marker recovered its nerve somewhat when the CSRC denied that it was looking to arbitrage the HK and Shanghai prices for dual liosted stocks.

Oil Prices Put Damper on Share Prices

HK was closed for a holiday.

Market Indices
Australia All Ordinaries 6723.30 - 0.85%
Bombay Sensex* 17596.61 - 2.20%
Hong Kong Hang Seng** 29465.05 + 0.57%
Japan Nikkei 16814.37 - 1.71%
Shanghai Composite 5818.04 - 0.12%
Singapore STI 3747.98 - 1.62%
South Korea Composite 1970.10 - 1.75%
Taiwan Weighted 9611.72 - 0.26%

*Late trading
**Market closed for holiday

The Big 30

HK breached the 30,000 level in intra-day trading on the back of reports that the CSRC is studying mechanisms to arbitrage the prices of stocks listed in bothe HK and Shanghai. Shanghai fell 3.5% on fears that the arbitrage will hit Shanghai prices as investors gravitate towards the HK market. The HSI touched 30,025 but closed lower at 29,465 when the CSRC said it was misquoted.

Climbing a Wall of Worry

The HK market opened down but closed up. There appears to be buying support at around 28,500. Yesterday, the story was the changing leadership. Today, there were concerns that the Chinese economy is running too hot.

Market Indices
Australia All Ordinaries 6696.10 - 0.23%
Bombay Sensex 18715.82 - 1.80%
Hong Kong Hang Seng 29298.71 + 1.19%
Japan Nikkei 16955.31 - 1.07%
Shanghai Composite 6036.28 - 0.92%
Singapore STI 3839.73 + 0.76%
South Korea Composite 1983.94 - 1.09%
Taiwan Weighted 9562.16 - 0.32%

17th Party Congress

Yesterday, the market was up over 700 points as the 17th Communist Party Congress got under way. Today it was down because there is concern that the new leadership may implement measures to cool the economy and therefore "burst the bubble". What new leadership?

All major decisions are taken at the premier and vice premier level. There may be changes at the head of various departments, etc. but the working level will also remain the same. So, there will be very little rocking of the boat by the "new brooms". The concept of a "new broom" is a very westernised. In the West, new leaders typically fought their way to the top, and are anxious to "clean house" so that they start anew. In the East, one gets to the top by being a team player, and we can expect the major directions to remain unchanged as new leadsers are picked to carry on the work of the old.

Most Asian markets fell on renewed credit-crunch jitters and profit-taking, but Shanghai shares bucked the trend, closing at another record high. Yesterday, Shanghai topped 6,000 for the first time rising 5 times over 2 years. Many have compared Shanghai to Taiwan in the early 90's which also rose 5 times in 18 months. However, we must remember that taiwan continued to double over the next 2 years before it came crashing down.

HSBC took a pounding because of Citi's write downs, and this brought all the financials down with it, including the Mainland ones.

Market Indices
Australia All Ordinaries 6692.00 - 0.70%
Bombay Sensex* 19081.23 + 0.12%
Hong Kong Hang Seng 28954.55 - 1.98%
Japan Nikkei 17137.92 - 1.27%
Shanghai Composite 6092.05 + 1.03%
Singapore STI 3810.72 - 1.33%
South Korea Composite 2005.76 - 1.46%
Taiwan Weighted 9592.47 + 0.78%

*Intraday trading

Hong Kong: China's Proxy Market

Asian indexes mostly rose, with oil and blue-chip gains driving Chinese markets to record closes while technology gains boosted Tokyo shares ahead of earnings reports. HK rose 702 to close at 29,540 which is yet another new high.

The HK market is being re-rated. Back in 1997, we had 6 million of population and 800,000 investors. Now with the announced QDII, through train, and other investors potentially coming from the Mainland, the market is looking very different from a domestic demand standpoint. Then we need to add the demand from overseas investors who is looking at HK as a proxy market for the Mainland because over 60% of the HK market capitalisationa dn over 70% of the daily turnover are in Maionland stocks.

The main investors are from the Middle-East. When I visited Saudi Arabia and Abu Dhabi early this year, I was told by their government investment authories that their national budget is based on US$35 per barrel. With oil now at US$85 per barrel, the excess need to be invested somewhere. Of the BRIC countries (Brazil, Russia, India, and China) HK is the biggest market and has the best regulatory and corporate governance environment.

Market Indices
Australia All Ordinaries 6751.60 - 0.13%
Bombay Sensex* 19085.12 + 3.60%
Hong Kong Hang Seng 29540.78 + 2.44%
Japan Nikkei 17358.15 + 0.16%
Shanghai Composite 6030.08 + 2.15%
Singapore STI 3862.02 + 0.12%
South Korea Composite 2035.39 + 0.44%
Taiwan Weighted 9518.45 + 0.23%

*Intraday trading

Xinxin Mining up 119%

Asian indexes declined, as profit taking on financial, real-estate and exporter shares following Wall Street's overnight decline reversed a week of record highs. HK opened weak and was down over 600 points at one stage. However, bargain hunting crawled back some of the losses to close down 294 at 28,838.

The one bright spot was the newly listed share which closed at $14.24 (high $14.90)on the IPO price of $6.50.

Top 5 IPO debuts in 2007
119.08%: Xinxing Mining 12 Oct 2007
97.74%: China High Speed Transmission Equipment 4 Jul 2007
81.76%: Tiangong International 26 Jul 2007
78.95: Emperor capital 24 Apr 2007
77.45%: Hildili Industry 21 Sep 2007

Market Indices
Australia All Ordinaries 6760.10 - 0.29%
Bombay Sensex* 18377.02 - 2.30%
Hong Kong Hang Seng 28838.37 - 1.01%
Japan Nikkei 17331.17 - 0.73%
Shanghai Composite 5903.26 - 0.17%
Singapore STI 3857.25 - 0.48%
South Korea Composite 2026.44 - 1.57%
Taiwan Weighted 9496.47 - 2.07%

*Intraday Trading

HS Index at 29,000

The HK market rose 562 points to close at a record 29,133.

The following statistics are made available by the HKEx:

Securities market
- The Hang Seng Index closed at a record high of 29133.02 today, up 563.69 points.
- Today's securities market turnover value was $179,409 million, the second largest in history.
- Today's closing market capitalisation was a new high of $21,512 billion. The previous trading day's (10 October 2007) closing market capitalisation was $21,061 billion.

2007-08 Policy Address

In his Policy Address, the Chief Executive of the HKSAR outlined his plans for HK. From the financial standpoint the most important being a reduction in tax rates, and the building of massive infrastructure projects to facilitate the integration with the Mainland. The following is an extract.

10 Major Infrastructure Projects for Economic Growth
“Infrastructure development can bring about huge economic benefits... the value added would be more than $100 billion annually. In addition, some 250 000 additional jobs would be created.”

South Island Line: Construction to start in 2011
The Sha Tin to Central Link: Will connect the Northeast New Territories and Hong Kong Island via East Kowloon. Construction to start in 2010
The Tuen Mun Western Bypass and Tuen Mun-Chek Lap Kok Link: Upon completion in 2016, will link Deep Bay in Shenzhen, the Northwest New Territories and Hong Kong International Airport
The Guangzhou-Shenzhen-Hong Kong Express Rail Link: Construction of high-speed rail link between West Kowloon and Guangzhou will start in 2009
Hong Kong-Zhuhai-Macao Bridge: Aim to complete financial arrangements in the near future
Hong Kong-Shenzhen Airport Co-operation: Will study the feasibility of a rail connection between Hong Kong International Airport and Shenzhen Airport
Hong Kong-Shenzhen Joint Development of the Lok Ma Chau Loop: Will work with the Shenzhen authorities to develop the Lok Ma Chau Loop
West Kowloon Cultural District: Aim to enact legislation in mid-2008 so West Kowloon Cultural District Authority can be established as soon as possible
Kai Tak Development Plan: First cruise terminal berth expected to be operational in 2012
New Development Areas (NDAs): Will plan for NDAs to provide quality living space in the northern New Territories

Asian shares advanced following gains on Wall Street, with Shanghai closing at a record high while Hong Kong rose on banking-sector strength.

The HK stock market must have liked the policy direction as it rose to close at 28,569 with the Chinese financials leading the way.

Market Indices
Australia All Ordinaries 6744.60 + 0.85%
Bombay Sensex* 18658.25 + 2.07%
Hong Kong Hang Seng 28569.33 + 1.21%
Japan Nikkei 17177.89 + 0.10%
Shanghai Composite 5771.46 + 0.97%
Singapore STI 3814.45 - 1.33%
South Korea Composite 2041.12 + 1.34%
Taiwan Weighted** 9639.83 - 0.80%

*Intraday trading
**Market closed for holiday

Another Roller Coaster Day

Asian shares ended higher, as Japanese investors showed renewed confidence, while strong trading debuts from several companies propelled shares in Hong Kong and Shanghai.

HK opened up then down. When I left to go to a meeting it was down over 200. I was still at a meeting when the market closed up 457 to close at 28,228 on HK$129 billion turnover. Some were disappointed with the turnover, but we must remember that last year the daily average was only HK$30 billion, and in the first 6 months of this year it was only HK$60 billion. So HK$120 billion days are nothing to sneeze at.

Market Indices
Australia All Ordinaries 6687.70 + 0.31%
Bombay Sensex* 18174.74 + 4.30%
Hong Kong Hang Seng 28228.04 + 1.65%
Japan Nikkei 17159.90 + 0.56%
Shanghai Composite 5715.89 + 0.41%
Singapore STI 3865.75 + 1.19%
South Korea Composite 2014.13 + 0.07%
Taiwan Weighted 9639.83 - 0.80%

*Intraday trading

HK: International Financial Centre?

HK wants to be an international financial centre. In many ways, it already is. We have 70 of the world's top 100 banks operating here. Over 200 of the 280 banks operating in HK are foreign registered. Of the US$ 560 billion in deposits, over half is in foreign currencies. Most of the world's top investment banks are already here. And the list goes on.

But in terms of the geographical spread of our listed companies, we are still tied to China which accounts of over 60% of our market capitalisation, 70% of our daily trading volume, and 90% of our IPO's. So where did we go wrong?

Actually, we did nothing wrong. We are just a century or two too late. Over 100 years ago, London was already floating China railway bonds! When New York outgrew London because of the size of the US domestic economy (something we are already seeing with Shanghai and China) London became bankers to the world. New York was content as it was too insular and too busy. HK must not make this mistake.

We must make ourselves attractive to issuers in other markets and follow London's example. NY is wise to the game. It has already spent millions of dollars commissioning studies of its competitiveness. And so has London, after all it invented the term international financial centre. So it isn't going to be easy this time around. They didn't like losing the Chinese IPO market and sure as hell would not want anyone poaching in their backyard.

We have 3 problems:

1. All the major investment houses are either US or UK based.

They have divided up the world among their subsidiaries into The Americas, Europe Africa and the Middle East, and Asia. It would take a very brave banker from one of the Asian subsidiaries to poach on something in the Europe sphere of influence. And that is why so many Russian companies (over 200) are listed in London. The bankers in Moscow are all sent from the UK. That, and the loose listing regime of AIM (more on that later).

2. Bankers sent out here are looking to their year end bonuses and are reluctant to invest their time in developing other markets.

And who can blame them, after all they have quota's and targets to meet. And our local investment banks are too small to take on market development work.

3. Our listing regime does not make it easy to list in HK.

Our market grew out of a purely domestic (HK) need, and protection of the small retail investors figure very high in terms of priorities. However, retail investors now account for less and less of the market share but the legislation is still skewed towards their protection. Fund managers tell us that the rule of law is of paramount importance, and it is. Especially, after a market blow up when every man and his dog is "asking where are the regulators?". But in the overall scheme of things fund managers will go where there is a profit to be made. You don't keep your job for long if you refuse to go into a market because of a lack of regulations while everyone is making a bundle there.

Dubai International Financial Exchange has spent millions building an excellent legal and regulatory infrastructure but only has 3 listings in 3 years to show for it. Ultimately, a market has to have a balance of regulation and openess. That is where AIM has done extremely well.

So how to solve these problems? The HK Government has to take the lead in longer term market development. This is not unfamiliar territory. HK has an excellent organisation in the Trade development Council. The TDC was set up to promote HK products made by small and medium enterprises too small to market them effectively overseas. It has trade offices all over the world promoting HK products (these days they are mostly made in Shenzhen but designed and sold by HK firms), organising trade shows, and bringing buyers to HK to meet with local companies.

Recently, it has made a very far sighted move into promoting HK services (including financial services) as well as the more traditional products. I have been on numerous trade missions with them promoting HK as a listing destination including Saudi Arabia, Abu Dhabi, Dubai, Kazakhstan, Taiwan, Moscow and St. Petersburg not to mention the promotions into China. It has done a lot but much remains to be done.

We need to have financial services attachees or specialists in some of the TDC offices abroad who understand what HK can do and can sniff out opportunities for HK financial services firms e.g. fund raising for toll roads in Vietnam, golf courses in St. Petersburg, joint venture banks in Moscow, etc. We have done all this before in China. We have the expertise. We can do it again. But, we need to know that there are opportunities.

Then, we need financial specialists on the HK staff to co-ordinate the efforts on this side. And finally, we need HK government support to undertake some of these projects similar to Exim banks facilities and guaranties. If the US/UK banks are not interested, we may be able to bring in the Chinese banks. After all, they are already making acquisitions and forays abroad.

--------------------------------------------------------------------------------
Coming back down to earth, let's look at how the Asian markets fared.

Most shares made strong gains across the Asian-Pacific region. Hong Kong closed slightly lower on profit-taking pressure after tracking record gains in Shanghai as financial firms played catch-up following a week-long holiday.

Market Indices
Australia All Ordinaries 6667.20 + 0.75%
Bombay Sensex* 17372.79 - 2.30%
Hong Kong Hang Seng 27770.29 - 0.22%
Shanghai Composite 5692.75 + 2.53%
Singapore STI 3820.31 - 0.06%
South Korea Composite 2012.82 + 0.84%
Taiwan Weighted 9717.17 + 1.04%

*Intraday trading

Correction? What Correction?

Asian markets were mixed, with Japanese shares down ahead of a three-day weekend, while Hong Kong rebounded on bargain hunting following a two-session slump. Stocks in HKL resume the rally with 3.18% bounce. The benchmark Hang Seng Index rose 857 points to close at 27,831 which is still 1,000 points off the intra day high on Wednesday.

Market Indices
Australia All Ordinaries 6617.30 + 0.57%
Bombay Sensex* 17732.85 - 0.25%
Hong Kong Hang Seng 27831.52 + 3.18%
Japan Nikkei 17065.04 - 0.16%
Singapore STI 3822.62 + 1.03%
South Korea Composite 1996.03 - 0.38%
Taiwan Weighted 9617.26 - 0.11%

*Intraday trading

A 2-Day Correction ... Wonder of Wonders!

Asian markets ended lower, reacting to a lower close on Wall Street, as investors continued to take profits from recent gains. HK was not helped by an article in the South China Morning Post (SCMP) suggesting that the Chinese authorities have banned the simultaneous listings of Chinese companies on the Shanghai and HK exchanges. In future they are supposed to list in Shanghai first and then later in HK.

This of course will have an impact on the HK market. The paper suggested that companies would choose to list in Shanghai because of the higher P/E's compared to HK. They appear to have forgotten that Chinese shares do not enjoy the high P/E's on listing as the CSRC apparently puts pressure on companies to lower their P/E's in order to ensure "successful" underwriting and aftermarket trading.

That does not mean that it would not affect HK. If the company achieves a P/E of, say, 40 times in the aftermarket, how can the management justify a later listing in HK for half of that? Actually, it will be quite easy as there is no market for secondary issues in China, and any additional fund raising will typically cause the stock price to fall. However, in the meantime, while we are all learning the new realities, China keeps chugging along with the lion's share (25%) of the worldwide IPO market. Unfortunately HK has been relegated to 8th place.

You can see how this affected sentiment by the market performance yesterday and today. But isn't it uncanny that the market tanked immediately after lunch as if a signal has been given? Interesting!

Market Indices
Australia All Ordinaries 6579.90 - 1.28%
Bombay Sensex* 17753.27 - 0.53%
Hong Kong Hang Seng 26973.98 - 1.84%
Japan Nikkei 17092.49 - 0.62%
Singapore STI 3783.81 + 0.78%
South Korea Composite 2003.60 - 0.52%
Taiwan Weighted 9627.39 - 0.75%

*Intraday trading

Roller Coaster Day

Asian stocks ended mixed, as Tokyo shares hit a two-month high and Hong Kong stocks suffered harsh reversals from profit-taking. When we went to lunch today, the HK market was up some 300 points. After lunch, the HS Index plunged over 719 points to close at 27,479 with record turnover of HK$209 billion.

Is this the beginning of the end? Most likely not. The market was up over 1,000 yesterday for no apparent reason and surely it is due for a correction. Since mid August when the market plunged to 19,500 intra-day, we have gained a handsome 8,000 points. Surely time to take a little profit.

Market Indices
Australia All Ordinaries 6665.40 - 0.03%
Bombay Sensex* 17719.95 + 2.26%
Hong Kong Hang Seng 27479.94 - 2.55%
Japan Nikkei 17199.89 + 0.90%
Singapore STI 3754.62 - 1.03%
South Korea Composite** 2014.09 + 2.62%
Taiwan Weighted 9700.07 + 0.80%

*Intraday trading

Who says the market has to be "rational"?

On the back of a 190 point rise in the Dow on Monday, the HK market finished up over 1,057 at 28,199 accompanied by record turnover of HK$163 billion. Turnover this high can only be attributed to institutional buyers who are afraid of being left behind in the rush to "buy China".

As today is the first trading day of the last quarter, the tsunami of foreign institutional funds hitting our shores would guarantee that the year will end on a high note.

The following statistics are made available by the HKEx:
- The Hang Seng Index (HSI) closed at a record high of 28199.75 today, up 1057.28 points, the fourth largest point rise in history. It was the largest point rise since 20 August 2007 when the index was up 1208.50 points. The HSI's 3.90 per cent rise today was its largest in per cent terms since 19 September 2007 when the index was up 3.98 per cent.
- The Hang Seng China Enterprises Index (H-shares index) closed at a record high of 17973.87 today, up 955.93 points, or 5.62 per cent.
- Today's securities market turnover value was $163,942 million, the largest ever.
- Today's turnover value for H-share and red-chip companies was $74,737 million and $18,778 million respectively.
- Today's derivative warrants turnover was $27,987 million, the largest ever.
- A record high total of 1,019,309 trades were concluded today.
- Today's closing market capitalisation was a new high of $20,757.1 billion. The previous trading day's ( 28 September 2007 ) closing market capitalisation was $20,054.9 billion.

Top 10 daily turnover values in history (Up to 2 October 2007)
Daily turnover value in HK$
Main Board GEM Market total
Rank ($) ($) ($) Date
1 163,132,418,781 810,057,000^ 163,942,475,781 2/10/2007
2 148,575,515,387 634,708,800 149,210,224,187 28/9/2007
3 147,053,974,999 831,473,240 147,885,448,239 27/9/2007
4 140,057,412,983 814,970,399 140,872,383,382 24/9/2007
5 138,709,411,014 657,991,096 139,367,402,110 19/9/2007
6 132,283,181,902 710,132,583 132,993,314,485 21/9/2007
7 129,178,392,000 605,960,271 129,784,352,271 25/9/2007
8 126,346,932,691 696,609,067 127,043,541,758 27/8/2007
9 122,942,024,498 639,900,384 123,581,924,882 28/8/2007
10 121,055,884,537 1,314,151,868 122,370,036,405 1/8/2007
^ Figures rounded

Top 10 point rise in history
Up to 2 October 2007
Rank Point rise Date
1 1705.41 29/10/1997
2 1326.24 2/2/1998
3 1208.50 20/8/2007
4 1057.28 2/10/2007
5 978.66 3/9/1997
6 977.79 19/9/2007
7 816.07 25/9/2000
8 806.59 16/10/1998
9 723.99 17/3/2000
10 722.96 31/5/2000

Elsewhere in the region, stocks gained across Asia, with several major indices touching record levels as investors shrugged off continued credit-crunch woes.

Market Indices
Australia All Ordinaries 6667.60 + 1.33%
Bombay Sensex* 17328.62 + 0.22%
Hong Kong Hang Seng 28199.75 + 3.90%
Japan Nikkei 17046.78 + 1.19%
Singapore STI 3790.54 + 0.94%
South Korea Composite 2014.09 + 2.62%
Taiwan Weighted 9623.25 + 1.42%

*Intraday trading

Holiday in HK

Asian stocks rose modestly, with Tokyo ending higher after the release of a key corporate-sentiment survey. Markets in Hong Kong and Shanghai were closed for Chinese National Holiday holidays.

Market Indices
Australia All Ordinaries 6579.80 - 0.02%
Bombay Sensex 17328.62 + 0.22%
Hong Kong Hang Seng 27142.47 + 0.29%
Japan Nikkei 16845.96 + 0.36%
Singapore STI 3755.22 + 1.32%
South Korea Composite 1962.67 + 0.83%
Taiwan Weighted 9488.50 + 0.13%