Wednesday, January 30, 2008

HK's Backdraft

Guru Lee Climbs Down From The Pedestal

HK's very own Warren Buffett has gone less bullish. OMG. When even the Supreme Venerable Grandmaster Lee Shau-kee tempers his enthusiasm for the stock market, it's time to pay attention.

The Henderson Land Development chairman yesterday revealed a much more conservative attitude toward the market, lowering his previous lofty targets. He even asked his legions of loyal followers to knock him off his pedestal as the "God of Stocks."Said Lee: "I am not the genuine 'God of Stocks.' I am only a fake please don't call me that any more. I am just a simple investor." At least he is paving the way for a cushioned fall. The man known as "Asia's Warren Buffett" said he has changed to become more stable and calm. He told reporters the Hang Seng Index will only reach 27,000 to 30,000 points by March, then the market will ease its rise in the second quarter. Guru Lee had previously said on New Year's Eve the HSI would surge past 33,000 in the spring - a level 10 to 22 percent higher than his current predictions - before hitting 36,000 in autumn.

Asked about a strategy for the second quarter, he said: "Hold on to your stocks and don't be too aggressive." Lee even said his interest in being a cornerstone investor in new listings has waned. "The share price for the newly listed stocks are rather high and I'm not too fond of it," he explained. What a difference a a couple of weeks make.

Among his portfolio, Lee said his favorite stocks are the ones related to resources that can be burned - including China Coal (1898), China Shenhua Energy (1088), CNOOC (0883), and PetroChina (0857). He also likes China Life (2628) and China Merchants Bank (3968).

Through-Train Being Downplayed Further

The central government may have new concerns about the introduction of the "through-train" policy because of the recent turmoil in financial markets, according to the Hong Kong Monetary Authority.

"The through-train policy should not be seen as a market-saving measure," HKMA chief executive Joseph Yam Chi-kwong told legislators yesterday, adding he did not have any updates about the scheme that would allow mainland individuals to invest directly in the local bourse. Meanwhile, Yam said he does not see any structural problems in the local stock market, despite recent volatility.

The authority does not intend to intervene in the stock market the way it did in 1998, he said, but the government will continue to hold its stake in Hong Kong Exchanges and Clearing. "I do not see large capital outflows, even if some foreign investors are opting to cash out. But I don't rule out the possibility that some may decide to buy now," said Yam. Given the recent financial turmoil, Yam does not think the "decoupling theory" would hold. As most Hong Kong banks follow US Federal Reserve rate cuts, Yam believed negative interest rates - which he described as "abnormal" - are inevitable.

"But economic slowdown will bring down demand and eventually drive down prices," said Yam. He did not rule out the possibility of issuing more Exchange Fund bills as that would narrow the interest rate difference between the Hong Kong interbank offered rate and bill yield.

It is important to remember that the "through-train" is a HK government initiative proposed to Beijing. Beijing had been enthusiastic about it back in August 2007. However the severe correction in China markets have basically made it "unnecessary" for now to consider the "through-train". The plan was supposed to act as another release valve for pent up liquidity in China. That does not seem to be a worrying factor these days. If it was a Beijing proposal, then there may be some follow-through in 2008, but its not.


Kelloggcornflakes said...

I was a firm believer of the decoupling theory until last week when every index in the world went down with DJIA. Hence even if Msia has O&G and plantation, we will not be immuned. US still contributes 20% of the world wide imports, Japan 5% and EU 10%. If these 3 regions slow, that effective is 35% of world gdp.

Boon said...

I never regard Lee Shau-kee as the Warren Buffet of Asia anyway. Lee Ka-Shing is the Warren Buffett of Asia.

Most Wall Street 'strategists' and fund mangers were calling for a year end target of more than 15,000 and some 17,000 for the Dow when the index broke 14,000. These guys are now at huge losses, and the media has been trying to put a very good spin on the bad news.

We should see the weakness spreading to sectors other than the financials in the future.

Best wishes

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