Most Asian indexes advanced for the second straight day. Hong Kong reaching a new record and Japanese stocks giving back early gains. Australia's central bank drained liquidity in a sign the credit crunch is easing its grip.

The story in HK is "same old, same old". Actually, it is getting a bit boring with new highs everyday. But as a trader, we must remember the old adage "Trade what you see, not what you think!" In other words don't argue with the market, you are not the only one with smarts.

Market Indices
Australia All Ordinaries 6400.90 + 0.61%
Bombay Sensex* 16347.95* + 0.15%
Hong Kong Hang Seng 25701.13 + 0.57%
Japan Nikkei 16413.79 + 0.20%
Shanghai Composite 5470.06 + 1.39%
Singapore STI 3552.46 - 1.17%
South Korea Composite 1908.97 + 0.33%
Taiwan Weighted 8983.03 + 0.63%

* Intraday trading

First Cut Is The Deepest

To paraphrase Rod Stewart's song.

The FOMC surprised everyone by cutting the Fed Funds rate by 1/2% instead of the widely expected 1/4%. The US market reacted by rising 335. HK opened up 900 and at one stage was up over 1,000. The market closed at 25,555 up 977 on heavy turnover of HK$138.7 billion.

The Fed moved aggressively in the first rate cut in 4 years sending out a very strong signal that it will do what is necessary to stop the sub prime woes from spilling into the broader market. The issue is one of moral hazard. Should the Fed bail out those financially irresponsible who put us into this mess in the first place. At the end, it was a no brainer. The Fed cannot afford to penalise the entire economy by punishing the irresponsible. Besides, a 1/2% cut will not bail out those who borrowed 100% at teaser rates and are now seeing their rates re-set to double.

The "Bernanke Put"? Not! However, the Fed also cut the discount rate by 1/2% to 5.25% in a bid to provide more liquidity to the market to facilitate roll overs of commercial papers.

Asian stocks and currencies surged in response to an aggressive Federal Reserve interest-rate cut, as the U.S. central bank moved to limit the risk of an economic downturn.

Market Indices
Australia All Ordinaries 6362.00 + 2.48%
Bombay Sensex* 16304.32* + 4.05%
Hong Kong Hang Seng 25554.64 + 3.98%
Japan Nikkei 16381.54 + 3.67%
Shanghai Composite 5395.26 - 0.55%
Singapore STI 3594.36 + 3.35%
South Korea Composite 1902.65 + 3.48%
Taiwan Weighted 8926.38 + 0.30%

* Intraday trading

Waiting for the Fed

In Hong Kong, property firms lost ground for a second day on profit-taking as we all waited with bated breath for the Fed meeting tonight (US time 18 September 2007). The expectation is that he will cut the Fed Funds rate by 1/4 percent. Some are hoping for a 1/2 percent cut.

I had just returned from a short visit to the US over the weekend. The man in the street does not appear too concerned about the economy which shows that the sub prime problems have only touched the edges so far. But! I was taking a stroll with my grandson one nioght and saw a "For Sale" sign outside a house on the development. It said, "New Price". This is a weak attempt to disguise "Reduced Further" that we see often in store sales. Homeowners are finding it more difficult to move their properties and can only mean that prices are coming DOWN.

The pain will be felt first by the builders and developers who have taken loans for the development. They will be forced to cut prices to liquidate their invnetory and repay loans. We are already seeing very generous incentives in the form of "upgrades" etc as they try to keep the top line prices from falling. The froth have gone out of the property market and everyone has adopted a "wait and see" attitude which is markedly different from the "buy before it's too late" mentality from the last 2 years. People are no longer camping out overnight to get in line to buy homes.

I went to my bank on Friday morning and was collared by a loans officer who offered me an equity loan on my house. No fees, no costs and a 1/2 percentage off the interest rate. On the surface, this appears to be business as usual. But this is in contrast to people lining up to take out 2nd mortgages to buy vacation homes, or investment properties. People are much more cautious and that can only mean that the adjustment has not yet run its course.

Market Indices
Australia All Ordinaries 6208.00 - 1.20%
Bombay Sensex* 15669.12* + 1.06%
Hong Kong Hang Seng 24576.85 - 0.09%
Japan Nikkei 15801.80 - 2.02%
Shanghai Composite 5425.20 + 0.07%
Singapore STI 3477.75 + 0.04%
South Korea Composite 1838.61 - 1.77%
Taiwan Weighted** 8899.91** - 1.46%

* Intraday trading
** As of Sept. 17. Markets were closed in Taiwan due to Typhoon Wipha.

HK retreated on Profit Taking

Asian shares closed mixed, with Hong Kong property firms dropping on profit-taking, while Shanghai reached another record close on strong gains from airlines and insurers.

Market Indices
Australia All Ordinaries 6283.70 - 0.51%
Bombay Sensex* 15504.43* - 0.64%
Hong Kong Hang Seng 24599.34 - 1.20%
Japan Nikkei** 16127.42** + 1.94%
Shanghai Composite 5421.39 + 2.06%
Singapore STI 3476.31 - 1.70%
South Korea Composite 1871.68 + 0.09%
Taiwan Weighted 8899.91 - 1.46%

* Intraday trading
** As of Sept. 14. Martkets were closed in Japan for a national holiday.

Yet Another New High!

Asian markets rose Friday after U.S. stocks rallied, with Japanese indexes lifted by metals stocks and exporters. Hong Kong shares reached their third record close.

Market Indices
Australia All Ordinaries 6315.70 + 1.14%
Bombay Sensex* 15603.80 - 0.07%
Hong Kong Hang Seng 24898.11 + 1.47%
Japan Nikkei 16127.42 + 1.94%
Shanghai Composite 5312.18 + 0.07%
Singapore STI 3536.40 + 0.91%
South Korea Composite 1870.02 + 1.19%
Taiwan Weighted 9031.63 + 1.17%

*Intraday trading

Another New High for HK!

Asian shares closed higher, with expectations of lower interest rates to come property firms pushing Hong Kong's benchmark Hang Seng Index to a new record.

Market Indices
Hong Kong Hang Seng 24537.02 + 0.93%
Japan Nikkei 15821.19 + 0.15%
Shanghai Composite 5273.59 + 1.95%
Singapore STI 3504.40 - 0.05%
South Korea Composite 1848.02 + 1.90%
Taiwan Weighted 8927.42 - 1.01%

*Intraday trading

Hong Kong Hits a Record High ...Again!

The Hang Seng Index closed up 357 points or 1.49 per cent at a record 24,310, after reaching an intraday high of 24329. The total market capitalisation of Hong Kong stocks also exceeded $18 trillion for the first time yesterday at $18.148 trillion.

While some commentators are castigating the HK Government for intervening in the market by buying 5.88% of the HKEx, investors were looking for the next stock to benefit from government intervention. Attention seem to be focused on the listed Mass transit Railway (MTR) ahead of a crucial vote on the merger with the unlisted Kowloon and Canton Railway Corporation (KCRC). Another candidate is the Link REIT which is under pressure from hedge funds to raise rents on shopping centres used by low income housing residents.

Market Indices
Hong Kong Hang Seng 24310.14 + 1.49%
Japan Nikkei 15797.60 - 0.50%
Shanghai Composite 5172.62 + 1.15
Singapore STI 3506.09 + 0.33%
South Korea Composite 1813.52 - 1.83%
Taiwan Weighted 9018.12 + 0.17%

*Intraday trading

Inflation Fears Hit Chinese Shares

China's inflation rose in August to the highest level in more than a decade while the country's August trade surplus climbed to its second-highest level ever. The Mainland's CPI rose 6.5% year on year (the target at the beginning of the year was 3%).

Investors were cautious that the central bank will further tighten liquidity. The central bank had raised interest rates 4 times this year, and increased bank reserve ratios 7 times. Shanghai fell 4.5% and Shenzhen fell 4.4%. HK managed to stay fairly steady because the valuations had not risen at the same pace as the Mainland markets.

China announced it's foreign exchange reserves is now almost US$1.4 trillion in July 2007. Since the first Mainland enterprise (Tsingtao Beer) listed in HK in 1993, Mainland enterprises have now raised US$200 billion in the HK market one-seventh of the country's foreign reserves. Yes, HK benefited from Mainland enterprises listing here, but we also played a part in building the financial infrastrucutre.

The recently announced through train, QDII relaxations etc. are aimed at reducing inflationary pressures on the Mainland by trying to divert some of the liquidity slooshing around into investments in HK.

Market Indices
Hong Kong Hang Seng: 23952.24 - 0.20%
Japan Nikkei: 15877.67 + 0.71%
Shanghai Composite: 5113.96 - 4.51%
Singapore STI: 3494.57 + 1.53%
South Korea Composite: 1847.36 + 0.63%
Taiwan Weighted: 9003.12 + 0.73%

*Intraday trading

Where the US Goes ... A Tale of 2 Markets

The HK market fell in early trading because of worries that Friday's weak US job data and DJIA drop of 249 points would carry over.

However, by the end of trading, the market had recovered its nerve and closed up at 23,999,70.

Market Indices
Hong Kong Hang Seng 23999.70 +0.07%
Japan Nikkei 15764.97 -2.22%
Shanghai Composite 5355.29 +1.50%
Singapore STI 3441.87 -1.35%
South Korea Composite 1835.87 -2.60%
Taiwan Weighted 8937.58 -0.89%

*Intraday trading

HK Inc.

The HK Governement announced that it now owns 5.88% of the HK Exchange (#388)making it the single largest shareholder. This drew criticism of market intervention.

Of course, in Singapore, the Government is majority owner (through GIC and Temasek) of almost all mbig listed companies. Somehow, Singapore has escaped criticism. Of course, HK does not complain to being held to higher standards.

Some complain that tighter integration of the HK and Mainland markets would expose HK to the risk of "policy" driving the market (i.e. vis-a-vis China). Maybe they have forgotten to take a look at the make up of the HK market. Over 50% of the market capitalisation is from mainland stocks, over 60% of the daily turnover are in Mainland stocks, and over 90% of the funds raised are for Mainland enterprises. Like it or not, HK is a proxy market for the Mainland.

Foreign investors are not allowed to invest directly in the Mainland. They do it either through the Qualified Foreign Institutional Investors (QFII) scheme or through the HK market. The quota for QFII is US$10 billion shared among 50 institutions (less than 1 day's turnover on the HKEx). No wonder the HK market is so active.

The HK Government already appoints 6 of the 13 directors of the HKEx including the Chairman and the CEO who is an ex-offico member of the Board. Also, investors need to get the approval of the Financial Secretary to own more than 5% of the shares.

Market Indices
Hong Kong Hang Seng 23982.61 - 0.28%
Japan Nikkei 16122.16 - 0.83%
Shanghai Composite 5277.18 - 2.20%
Singapore STI 3488.97 + 0.66%
South Korea Composite 1884.90 - 0.21%
Taiwan Weighted 9018.08 + 0.01%

*Intraday trading

Tighter Bank Reserves in China

The People's Bank of China (PBOC) raised the cash reserves that banks are required to keep up from 12% to 12.5%. This 0.5% increase will take RMB 170 billion off the table. The Chinese economy has been growing at a breakneck speed of over 9% per annum since it was opened 30 years ago.

The "non stop through train" to invest in HK shares will likely be delayed until after the 17th Congress while technical details are being worked out. However, at the same time the minimum RMB 300,000 required for investment in Qualified Domestic Institutional Investors scheme has been reduced to RMB 100,000. Which coincidentally is the same level as originally proposed for the through train for individual investors. Rumours are that it will be be increased to RMB 300,000 --- go figure! Seems like the CSRC, the CBRC, PBOC and SAFE really have to start talking to each other.

Market Indices
Hong Kong Hang Seng 24050.40 - 0.08%
Japan Nikkei 16257.00 + 0.61%
Shanghai Composite 5393.66 + 1.56%
Singapore STI 3466.06 + 0.61%
South Korea Composite 1888.81 + 1.24%
Taiwan Weighted 9017.08 + 1.16%

*Intraday trading

Putting the Worries Behind Us

Market Indices
Hong Kong Hang Seng 24069.17 + 0.77%
Japan Nikkei 16158.45 - 1.60%
Shanghai Composite 5310.71 + 0.31%
Singapore STI* 3441.10 + 1.93%
South Korea Composite 2534.38 - 0.49%
Taiwan Weighted 8913.85 - 0.10%

*Intraday trading

Waiting for August

Hong Kong was dragged down by profit-taking and investors awaited the release of key U.S. economic data for August.

Market Indices
Hong Kong Hang Seng 23886.07 - 0.08%
Japan Nikkei 16420.47 - 0.63%
Shanghai Composite 5294.04 - 0.51%
Singapore STI 3376.06 - 0.30%
South Korea Composite 1874.74 - 0.38%
Taiwan Weighted 8922.98 - 0.63%

*Intraday trading

No follow through on Friday's Rise

Market Indices
Hong Kong Hang Seng 23904.09 - 0.33%
Japan Nikkei 16524.93 - 0.27%
Shanghai Composite 5321.05 + 1.96%
Singapore STI 3386.22 - 0.20%
South Korea Composite 1881.81 + 0.46%
Taiwan Weighted 8979.96 - 0.02%

Jackson Hole to the Rescue

The Hang Seng Index was up 499 to close at 23,984.14, yet another new high.

And to what do we owe this? Anticipation that, in his speech in Jackson Hole today, the Fed Chairman will tip his hand about the coming cut to the Fed Funds rate (most are expecting 0.25% and some are even looking for 0.5%) at the next meeting on 18 September 2007. As if that wasn't enough, the Washington Post has published leaks of the President's plan to rescue home owners who are unable to refinance their 0% down, no interest teaser loans. It's a wonder that the market did not finish up 1,000!!!

It seems that political expediency has taken precedence to financial responsibility. Mortgage brokers earned fat fees to help unqualified buyers buy over priced homes they could not afford. Now the US government is proposing to bail them out! And the Hong Kong government was accused of intervening in the HK stock market in 1998 by fighting off the hedge funds who were intent on bringing down our financial system like they did in the rest of Asia. "Let the market adjust to the correct level", they said.

Any way, I am real glad I am not a US taxpayer now being asked to finance some dumb borrower who got himself into trouble. Hmm, maybe they were not so dumb after all.

Locally, the Securities and Futures Commission "SFC" issued a restriction notice on Man Lung Hong Securities Ltd (broker numbers: 3490 and 3499) today (Friday 31 Aug 2007) under sections 204 and 205 of the Securities and Futures Ordinance.

The HKEx, has suspended Man Lung Hong's right to access the trading system, and declared Man Lung Hong a defaulter under Rule 3702 of the Rules of CCASS, the Central Clearing and Settlement System. HKEx will closeout the unsettled stock positions of Man Lung Hong Securities.

Last year 3 brokerages were put under restriction orders (2 subsequently folded and 1 was rescued) when the SFC found that they had mis-appropriated clients' assets. The current case is different in that apparently an employee misappropriated his clients' assets. The firm was put under a restriction order because apparently senior management had been aware of the mis-appropriation for some time and had allowed the employee to try to trade out of the position. Under the Securities and Futures Ordinance, the firm is required to notify the SFC as soon as practicable on discovering the problem.

Clients can seek compensation from the Investors Compensation Fund which would pay out a maximum of HK$150,000 per account. Many have questioned whether the sum reflects current market conditions as it was set during the collapse of CA Pacific (a brokerage) in 1998 and have not been adjusted since (the market have almost tripled in that time). The maximum payout was set at HK$150,000 as this was sufficient to pay off 80% of the clients in full. Clients with bigger balances were deemed to have been sufficiently sophisticated to assess the risk and did not need to be rescued.

The Fund has approximately HK$1.5 billion and was funded by a 0.002% levy on stock trading transactions. The levy was discontinued at the end of 2005 but can be re-instated should the balance fall below HK$1.0 billion.

Market Indices
Hong Kong Hang Seng: 23,984.14 +2.13%
Japan Nikkei: 16,569.09 +2.57%
Shanghai Composite: 5,218.82 +0.99%
Singapore STI*: 3,373.73 +1.58%
South Korea Composite: 1,873.24 +1.71%
Taiwan Weighted: 8982.16 +2.02%

*Intraday trading

Where the US Goes ... We Follow!

The Dow Jones Industrial Average closed last night up 247 as investors re-evaluated the Fed's position. A letter to Sen. Charles Schumer from Federal Reserve Chairman Ben Bernanke pledging to "act as needed" to help the economy (read cutting Fed Funds Rate) should the problems in the credit market start to affect the wider economy.

The Hang Seng Index rose 463 to close at 23,483 with turnover of HK$95.87 billion. China Construction Bank was outstanding and rose to an all-time high of HK$6.30 before closing off the day's high. All in all, it appears that investors have got their nerve back and started bargain hunting.

Market Indices
Hong Kong Hang Seng: 23,484.54 +2.02%
Japan Nikkei: 16,153.82 +0.88%
Shanghai Composite: 5,167.88 +1.14%
Singapore STI*: 3,342.28 +0.23%
South Korea Composite: 1,841.70 +0.85%
Taiwan Weighted: 8,771.21 +1.48%
*Intraday trading

Where is the Fed Cavalry?

The US market was down 280, and the HK market followed suit. At one stage the market was down 700 but managed to close at 23,020 down 343. Turnover was HK$104.2 billion.

There was disappointment that the Fed is still targeting inflation as "public enemy no. 1". This is read as meaning that there will not be a cut in Fed Funds rate in the short term.

The Fed was in a bind. Clearly, what is happening on Wall Street is affecting Main Street. The housing slowdown is worrying as it will spill over into other areas e.g. household goods, etc. Consider that the acquisition price of Home depot was cut substantially to reflect not only the availability of funds, but also future prospects. However, just 2 weeks before the sub prime mess hit the fan, the Fed had been saying that inflation was still worrying. Perhaps it was naive to expect the Fed to admitting it was wrong so soon.

I expect that there will be a cut in the Fed Funds rate in the not too distant future as the economy starts to show signs of slowing down. The next FOMC meeting will be on 18 September 2007. At that time, the Fed will data from which to draw conclusions on the state of the economy.

Market Indices

• Bombay Sensex*: 14,977.96 + 0.39%
• Hong Kong Hang Seng: 23,020.60 -1.47%
• Japan Nikkei: 16,012.83 -1.69%
• Shanghai Composite: 5,109.42 -1.64%
• Singapore STI*: 3,304.99 -1.14%
• South Korea Composite: 1,826.19 -0.17%
• Taiwan Weighted: 8,643.32 -0.97%

*Intraday trading

A Much Needed Correction

Finally, a meaningful consolidation! The market was down today on profit taking, closing at 23,363 down 213.97 with turnover HK$122.94 billion (second only to yesterday's HK$126.35 billion record high). Most mainland shares were down on the open and closed off the day's highs. China Life continued to surge on good 1st half results. There was also buying in issues where the A-share were trading at a big premium to the H-share.

Of course, Shanghai continued its upwards trend oblivious to what is happening to the rest of the world.

Market Indices

• Hong Kong Hang Seng: 23,363.76 -0.91%
• Japan Nikkei: 16,287.49 -0.09%
• Shanghai Composite: 5,194.68 +0.87%
• Singapore STI: 3,343.00 -1.34%
• South Korea Composite: 1,829.31 +1.46%
• Taiwan Weighted: 8,727.55 +0.11%

HK Shares Rose on Expected Funds from Mainland

The Hang Seng Index rose sharply on the opening and continued strongly to close up 655 at 23,577.

Today is the first day that the Bank of China Tianjin Branch can officially open accounts for Mainland clients to invest directly in HK shares. Investors believe that valuations of H-shares (Mainland issues) will rise to close the gap with their A-share prices.

Construction Bank of China "CCB" (#939) performed strongly on good results and disclosure that it had only minor exposure to the sub prime mess. The Mainland's 3rd largest bank closed at $6.15, the highest level since listing in October 2005.

Shanghai hit its sixth consecutive record closing high. The Mainland market is now 60% more expensive than HK on average.

Market Indices

• Hong Kong Hang Seng: 23,577.73 +2.86%
• Japan Nikkei: 16,301.39 +0.32%
• Shanghai Composite: 5,150.11 +0.83%
• Singapore STI*: 3,388.44 +0.56%
• South Korea Composite: 1,803.03 +0.65%
• Taiwan Weighted: 8,718.31 +0.32%

*Intraday trading

A Correction!

A correction in HK, that is. The Mainland market continued on the upswing gaining 1.49% to yet another new high of 5,107 having just broken through 5,000 for the first time yesterday.

Mainland investors feel insulated against the problems of the sub prime debacle in the US.

Market Indices

• Hong Kong Hang Seng: 22,921.89 -0.20%
• Japan Nikkei: 16,248.97 -0.41%
• Shanghai Composite: 5,107.66 +1.49%
• Singapore STI*: 3,362.94 -0.24%
• South Korea Composite: 1,791.33 -0.47%
• Taiwan Weighted: 8,690.09 -0.49%

*Intraday trading