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RPT-WEEK AHEAD-Hong Kong stocks set for third week of losses

By Katie Hunt

HONG KONG, Dec 15 (Reuters) - Hopes are fading for a year-end rally in Hong Kong shares, with the market expected to post its third straight week of losses as the threat of a U.S.-led war against Iraq gnaws away at investor confidence.

Brokers said the market would likely head south in traditionally thin pre-Christmas trade, with defensive oil stocks CNOOC Ltd , China's largest offshore oil producer, and PetroChina in focus as oil prices hit two-month highs.

"Hong Kong stocks will continue their correction next week. People are concerned about war tensions and higher oil prices and their effect on the U.S. economy," said Ben Kwong, associate director at KGI Asia Securities, who expects the market to trade in a 9,500 to 9,900 point range this week.

The benchmark Hang Seng index closed at its lowest level in a month on Friday at 9,728.43, down 2.45 percent for the week.

Concerns over a downturn in the property market pushed the index lower last week, with leading developers Cheung Kong Holdings , Henderson Land and Sun Hung Kai Properties losing 5.4 percent, 7.6 percent and 5.8 percent respectively.

JOBS DATA

Investors will seek clues on the state of Hong Kong's economy, when jobless data is released on Monday.

Hong Kong has scored five straight months of surging exports. Although this had driven the economy to a 3.3 percent expansion in the third quarter, domestic demand in the territory remains weak as fears of job losses and wage cuts abound.

Economists are expecting the jobless rate to remain unchanged at 7.2 percent for the September to November period, off a peak of 7.8 percent but still high.

"In terms of asset allocation, we are striking a balance between defensive and cyclical stocks next year," said Stella Lau, investment manager at East Asia Asset Management Ltd. "We are still defensive right now but looking for more signs of recovery."

Pummelled by a weak domestic and global economy, the Hang Seng is down 14.64 percent for the year to date, but has gained 10 percent since its trough in early October.

CHINA PLAYS

Brokers also said that China plays, such as auto maker Brilliance China , could see some interest as the country's massive domestic market would be relatively immune to international tensions and they required a smaller outlay of capital.

On Wall Street, stocks closed lower on Friday, with the blue-chip Dow Jones industrial average down 2.5 percent on the week, while the tech-laden Nasdaq Composite Index , saw losses of 4.2 percent.

Sentiment on Wall Street, a key gauge of the world's largest economy, often holds sway on the Hong Kong bourse as the United States is the territory's second largest trading partner.

In the wider market, banking stocks could see some speculative buying interest, after shareholders of International Bank of Asia said they wanted to sell their stakes, sparking talk of consolidation in the territory's crowded banking sector.

IBA's stock, which was suspended from trading on Friday, has surged 17.8 percent over the past month, but is still trading at below its underlying book value. Brokers said that small banks such as Liu Chong Hing Bank and Wing Lung Bank could also gain.

MONDAY, DECEMBER 16

- 1600 Unemployment and underemployment statistics for Sept-Nov 2002.

- Cafe de Coral Holdings Ltd H1 results.

- Kingmaker Footwear Holdings Ltd H1 results.

TUESDAY, DECEMBER 17

- Skyworth Digital Holdings Ltd H1 results.

WEDNESDAY, DECEMBER 18

- Ananda Wing On Travel (Holdings) Ltd H1 results.

- Texwinca Holdings Ltd H1 results.

- Henderson China Holdings Ltd holds its annual general meeting.

THURSDAY, DECEMBER 19

- Asia Tele-Net and Technology Corporation Ltd H1 results.

FRIDAY, DECEMBER 20

- China Gas Holdings Ltd H1 results.

- Lai Sun Development Co Ltd holds its annual general meeting.