Investment rule change sparks HK buying spree

Market value soars to record $18.5b as Hang Seng Index hits an all-time high


A CHANGE in China's banking laws announced last Friday evening ignited a phenomenal buying spree on Hong Kong's Hang Seng Index yesterday.

Turnover hit a record HK$95 billion (S$18.5 billion) as the index rocketed 511.03 points or 2.5 per cent - its best one-day showing in nearly a year - to end at an all-time peak of 20,979.24.

Trade was so ferocious that HK$63 billion worth of shares had changed hands by the lunch break - exceeding last Friday's full-day total of HK$60.7 billion.

The trigger was the Beijing government's move to allow banks to buy shares outside the mainland under the Qualified Domestic Institutional Investors programme, or QDII.

Hong Kong's bourse is the only one approved so far to receive such funds, so investors are gleefully anticipating a flood of mainland cash.

The bourse's operator - Hong Kong Exchanges and Clearing - was the best-performing blue chip, soaring 10.8 per cent.

The QDII programme will soon allow banks to set up funds which can invest as much as 50 per cent of their assets in overseas stock markets.

Chinese firmss that have listed in Hong Kong 'will be the obvious initial beneficiaries of the Chinese wall of liquidity when domestic investors start where they know the most', said JPMorgan Chase.

Hong Kong and the mainland have enjoyed close financial ties since the city returned to Chinese rule 10 years ago.

Stocks of mainland companies listed in Hong Kong, known as H-shares, now account for about half of total market value, up from just a paltry 1.5 per cent in 1997.

The announcement last Friday had followed a bout of market corrections with the index sliding 1.8 per cent - its biggest weekly tumble in two months.

These came on the back of Wall Street losses, plus worries that the Chinese authorities would announce further credit- tightening measures to help halt a potential overheating of the country's economy.

The concerns may continue to cast a shadow over yesterday's euphoria, with news that China's State Council has sought advice from top economists to control the rapid rise of the country's share prices.

China's domestic A-share index breached the 4,000 mark for the first time last week, sparking fears that the market could have risen too high.

Sources cited in a Reuters report yesterday said prominent economists met recently to discuss whether stock prices were in a bubble, and if a capital gains tax might be needed.

'As I understand it, the authorities are very concerned about the stock market,' one source told the wire agency.

Over the weekend, the China Securities Regulatory Commission (CSRC) also urged the financial sector to help educate the public and prevent irrational behaviour and 'reckless and blind' investments.

'Some investors are using pension savings, or pawn their properties to speculate in stocks. They must be warned, and they need to remember that funds essential for living should never be put into risky investments,' reported the official Xinhua news agency, citing the CSRC.

Hang Seng Index issues enjoy big boost

CHINA'S move to allow domestic banks to invest in overseas equity markets gave a big boost to Hong Kong blue chips and China-linked stocks.

As a result, covered warrants on the Hang Seng Index traded in Singapore also got a major fillip.

Yesterday, the Hang Seng Index ended up 511.03 points at 20,979.24, an all-time high.

A call warrant from Macquarie Bank with a strike level of 20,600 points was among the most actives.

It soared 22.5 cents or 96 per cent to close at 46 cents. More than 16 million units were traded.

A call warrant lets an investor buy into a stock or index at a pre-set price over a period.

Generally, call warrants on the Hang Seng surged. Even if volume was limited, there were rich pickings to be had. For example, another Macquarie call warrant, with a strike level of 20,200 points for the Hang Seng, jumped 28.5 cents to 85.5 cents.

Although only 794,000 units were traded, the warrant had registered a rise of 50 per cent.

Put warrants on the Hang Seng, giving the right to sell the benchmark, lost ground.

One issued by Macquarie, with a strike level of 20,200 points, lost 17.5 cents to 25 cents, on a volume of 9.8 million units.

Warrants on China-related stocks enjoyed a strong showing.

A Macquarie call warrant on China Citic Bank, with a strike price of HK$7, gained 2.5 cents to 27.5 cents.