Fund redemptions add to sell-off pressures on Hong Kong stock market

Hong Kong stocks tumbled 7.19 percent on Friday, with a spray of indiscriminate sell-off by fund managers on redemption pressures adding to the woes of the already troubled market, analysts said.

The benchmark Hang Seng Index opened down 7.69 percent at 14, 717.52 and once dipped to as low as 14,398.54. It closed down 1, 146.37 points at 14,796.87, marking the first time for the blue chip index to end below 15,000 in about three years.

Turnover totaled a moderate 69.37 billion HK dollars , compared with 60.87 billion HK dollars on Thursday.

All the 42 blue chip stocks lost ground, with market heavyweight HSBC Holdings shedding 6.95 percent to contribute a drop of 209 points to the index change, in spite of the London- headquartered banking giant saying it had abundant liquidity.

Analysts attributed the losses to the tight credit market, as the banks remained unwilling to lend to each other despite the high interbank rates. Tight liquidity forced some investors to redeem their investments in funds, which, in turn forced the fund managers into a spray of indiscriminate sell-off.

Jasper Tsang, director of equity research at CSC Securities Limited, said quite a number of funds faced redemption pressures, leading to selling pressures on the "stable" stocks that would normally have been considered safer investments.

Chan YK, an analyst with Phillip Asset Management, said the fact that even the utilities chips suffered from a spray of sell- off, let alone the mainland-based quality stocks, shows that the investors were selling off indiscriminately.

The utilities sub-index suffered a loss of 6.88 percent on Friday, which was more than the percentage point losses for the commerce and industry genre.

In a sign of redemption pressures on the investment funds, the Hong Kong unit of Atlantis Investment Management said it has suspended redemptions in its Atlantis China Fortune Fund -- a hedge fund with outstanding performance -- due to market volatility.

Yang Liu, the company's chairperson, said the company felt the move would best protect the interests of investors, local and international media reported.

The financial sub-index suffered a loss of 7.54 percent, and the properties issues lost 9.64 percent, which was the biggest loss among the four major categories.

HSBC local unit Hang Seng Bank, which adjusted its economic growth forecasts for Hong Kong in 2008 and 2009 on Friday, lost 7.55 percent at 109 HK dollars, while local player Bank of East Asia lost 3.59 percent to close at 20.15 HK dollars.

BOC Hong Kong, the local unit of mainland-based commercial banking group Bank of China, lost 7.56 percent at 11 HK dollars on high interbank loan interest rates.

China Life turned out one of the biggest losers with a plummeting drop 13.01 percent at 22.4 HK dollars, contributing 108. 68 points to the change of the blue chip index.

China Mobile, another market heavyweight and by far the largest mobile carrier on the Chinese mainland, lost 4.32 percent to end at 66.4 HK dollars. HSBC Holdings, China Life and China Mobile contributed a total of almost 400 points to the index change.

Cheung Kong, the real estate conglomerate headed by Li Ka- shing, closed down 8.10 HK dollars at 67.5 HK dollars, despite the" superman" chairman's buying of company stocks. Residential developer SHK Properties also tumbled 11.63 percent on fears the local banks might raise mortgage interest rates due to high interbank lending rates.

Dickie Wong, of Friedmann Pacific Investment, said he expected the investors to continue shying away from the stock market even if they had cash on hand. The limited effect of the concerted rate cuts by central banks of major economies showed that the investors just had no confidence, adding to the economic recession fears.

Wong said he expected the market to look to further boost measures by the United States federal government for cues, like a possible direct injection of cash into the banking system.

Source: Xinhua