Gloomy Outlook in Hong Kong Stocks

123jump.com Staff
31 Jan, 2008
New York City

Hong Kong stocks are suffering one of the worst slumps in the last decade as worries related to sub-prime losses keep rising. Five largest Japanese banks, who previously had denied signifincant exposures to the U.S. loans, are now expected to report $4.6 billion of write-downs. Investors fear a similar write-offs at banks in China ad Hong Kong. Lenovo Group gained after a rise in profit and a plan to sell mobile phone business.

[R]6:00PM New York, 6:00AM Hong Kong- Hong Kong Monetary Authority cuts rate to 4.5%. Yue Yuen plans to list its retail subsidiary in Hong Kong.[/R]

In Hong Kong trading Hang Seng Index slipped 0.8% or 195.95 to 23,455.74, while the Hang Seng China Enterprises Index dropped 2.1% to 12,485.07. Market index losses are running as high as reached during the Asian market crisis in 1997.

Of the 43 Hang Seng Index shares, 26 gained and 16 declined.

Daily turnover on main-board soared to HK$110.7 billion compared to 105.1 billion yesterday.

The Hong Kong Monetary Authority today lowered its key rate to 4.5% after the U.S. Federal Reserve slashed in benchmark rate from 3.5% to 3% yesterday.

HSBC and Standard Chartered also cut their lending rate by a quarter percentage point and cut interest rates paid on deposits for sums below HK$150,000 by 0.25%.

China People’s Daily online edition reported today that Hong Kong secretary for Commerce and Economic Development Frederick Ma yesterday spurned calls to introduce “group loss relief” and “loss carry back” provisions may lead to widespread tax evasion.

Under the “group loss relief” the losses of one or more companies can offset the profits of others in the same group, while under the “loss carry back” system profits can be offset by profits made in the previous year so that the company can get a tax refund on tax paid.

Shipping lines rallied after the Baltic Dry Index, which is used as a measure of freight charges, rose 5.1% yesterday. China Cosco Holdings Limited advanced 12% to HK$1.86 and Pacific Basin Shipping Limited soared 13% to HK$1.26.

Lenovo Group Limited climbed 13% to HK$5.37 after reporting third quarter profit rose to $172 million. The company also announced plans to sell its mobile phone business for $100 million and concentrate on PC’s.

However financial stocks declined after U.S. credit rating agency Standard & Poor said yesterday it might cut ratings on $534 billion mortgages and collateralized debt obligations. Brokerage BNP Paribas also cut its rating on China’s financial services sector from “neutral” to “underweight”.

China Construction Bank shed 32% to HK$5.39 after BNP Paribas also cut rating on the stock to “buy” from “hold”.

Coal companies also fell as well. China Coal slipped 9.2% to HK$1.80 and Yanzhou Coal Mining tumbled 5.5% to HK$13.06.

Retailer Esprit reported today that first half net profit jumped 37.3% from HK$2.4billion a year ago to HK$3.3billion. Turnover climbed 27% to HK$18.5billion from HK$14.6 a year earlier.

About half of the company’s turnover was in Germany after a tax reduction. Furthermore, the company plans to spend HK$500 million to open 60 new stores globally.

The Standard news online reported today that Yue Yuen, which makes shoes for Nike and Timberland, said it will spin off its retail business arm Pou Sheng International for $800 million and list the company in Hong Kong after it receives shareholder approval.


[R]5:00AM New York, 7:00PM Tokyo - Japan’s average monthly wages per regular employee declined 1.9% in December from a year earlier.[/R]

Stocks in Japan rallied on strong corporate earnings especially from carmakers and a weakening yen, including news that the U.S. Federal Reserve slashed its key rate by 0.5% yesterday to 3.5%.

In Tokyo trading Nikkei 225 climbed from a 1.4% drop in the morning trading to close up 1.85% or 247.44 to 13,592.47, and the broader Topix Index also rose from a 1.8% decline to a gain of 26.20 to 1,346.31.

In the first section of the Tokyo Stock Exchange 10 billion shares worth 1.2 trillion yen were traded and in the second section 729 million shares valued at 5.2 million yen changed hands.

Of the Nikkei 225 stocks 177 gained, 44 declined, and 4 were unchanged. Yahoo Japan Corporation led advancers with a rise of 11.68% after reporting a 13% increase in profit in the third quarter yesterday.

Japan’s Ministry of Health, Labor and Welfare reported in its provisional report of monthly labor survey that average cash earnings per regular employee declined 1.9% in December from a year ago to 596,895 yen, while contractual cash earnings rose 0.3% to 271,495 yen.

Also scheduled cash earnings jumped 0.5% to 250,995 yen. However the real wage index fell 2.7%.

The labor ministry further added that total hours worked per regular employee fell 1.5% from a year ago to 150.6 hours in December and non-scheduled hours worked in manufacturing gained 0.5% to 17.3 hours.

The statistics also show that number of regular employees was increased by 1.7% in December year-on-year, while full-time and part time employees rose 1.7% and 1.9% respectively.

Nikkei news online reported today that Japan’s five biggest banks-Mitsubishi UFJ, Mizuho Financial Group, Sumitomo Mitsui Financial Group, Sumitomo Trust & Banking-may face combined subprime losses of 500 billion yen.

Already Sumitomo Trust yesterday revealed subprime losses amounting to 29.9 billion yen and Sumitomo Mitsui also booked 99 billion yen in losses over 9 months.

According to the online news service, Mitsubishi UFJ Financial Group may report 50 billion yen in losses in the nine months to December 2007 and that the losses might be increased to 90 billion yen for the full year ending in March 2008.

In addition, analysts have now projected sub-prime losses at Mizuho Financial Group may reach 300 billion yen.

The yen weakened from 106.58 to 106.60 against the dollar.

Of the Nikkei 225 index shares Yahoo Japan Corporation led advancers with a rise of 11.68% followed by gains of 11.13% in Terumo Corporation, of 8.70% in Matsushita Electrical Industries, of 8.22% in Alps Electrical Company Limited, and of 7.58% in Sanyo Electric.

Yahoo Japan Corporation rose after reporting yesterday that the company’s third quarter profits jumped 13%.

Terumo Corporation also advanced on strong earnings results.

Carmakers were also buoyed by strong sales in Asia and Europe that helped offset shrinking demand in Japan and in the U.S. Honda Corporation reported yesterday that net profit in the third quarter jumped 35% to 347billion yen from 276billion yen a year earlier.

According to Honda, strong demand from Brazil, Russia, India and China is expected to drive sales in 2008.

Hino Motors rose 6.21% and Toyota Motor Corporation soared 5.43% as a result.

Chugai Pharmaceutical led decliners of the Nikkei 225 stocks with a drop of 17.60% followed by losses of 13.83% in Chiyoda Corporation, of 7.92% in Nippon Soda Company, of 3.23% in Aeon Company Limited, and of 2.46% in Dowa Holdings.

Chugai Pharmaceuticals fell after reporting yesterday profit for the year will decline as the cut in pharmaceutical prices ordered by the government and shrinking sales of Tamiflu and Epogin took their toll on earnings.

Sales of Tamiflu and Epogin are forecasted to drop 81% to 7.3 billion yen and 14% to 47billion yen correspondingly.

Seiko Epsom reported on its website today that net sales in the nine months to December 2007 is estimated to rise 3.4% from a year ago to 1.037 trillion yen, while net income increased 59.5% to 22.2 billion yen in the same period from a year ago.

The company also reported that demand in the inkjet market was flat as growth in Europe and Asia offset contraction in Japan and the U.S, adding that demand for 3G phones is also robust in Europe and North America.

Canon reported that net income for the year will rise 6.5% to 520 billion yen, below the 531.5 billion yen forecasted by economists.

In addition the company also said annual sales are expected to slump the most since 1999. Canon closed down 2.35%.

Mitsui O.S.K. Lines reported today that profit for the quarter to December 31 climbed from 39.8 billion yen to 58.9 billion yen. The company also raised its full year net income projection to 190 billion yen for the year ending March 2008 from 185 billion yen that the company had previously forecasted.