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HK equities' rally to remain full of power

HONG KONG: Hong Kong stocks are expected to extend their gains significantly this week, underpinned by good earnings results, analysts said.

They said wariness over Opec oil ministers' meeting to discuss possible production hike and expiry of index futures contracts was unlikely to stop the stock market's gains.

"A lot of blue chip stocks have the momentum to go a lot further. March marked an important low in a lot of equity markets around the world, including Asia. This is just the beginning," said Ted Chen, regional technical analyst at Indosuez W.I. Carr.

In the short term, the benchmark Hang Seng Index should head back to 18,250, its all-time high, with further upside to 19,700 likely before the current rally pauses, Chen said.

The Hang Seng Index closed 73.09 points or 0.42 percent higher at 17,784.57 on Friday after a volatile week following the election of opposition candidate Chen Shui-bian to the Taiwan presidency and concerns over China's reaction to his election.

Despite the volatility, the index recovered from its March 16 low of 16,315, hit following a warning from China's Premier Zhu Rongji to the Taiwan people to choose their future president wisely, an implicit threat not to choose Chen and his party's call for an independent Taiwan.

Political concerns would not hold back the market's three largest stocks, Chen said.

"HSBC has just bottomed out. A move of 10 percent would put it back to its July 1999 high of HK$101 and 10 percent for China Telecom and Hutchison is nothing," Chen said.

HSBC Holdings Plc leaped HK$2.25 or 2.51 percent to close at HK$92 on Friday. Its 12-month high is HK$111.50.

China Telecom (Hong Kong) Ltd slipped HK$1.75 or 2.34 percent to HK$73.00. The share has risen 462 percent in the past 12 months, most of it in the past five months.

Hutchison Whampoa closed unchanged at HK$145 on Friday. The company on Thursday reported 1999 after-tax profit of HK$117.35 billion, more than 13 times its 1998 profit of HK$8.71 billion.

The company has already booked more than US$50 million in earnings on investments in 2000 and has a war chest of US$20 billion in cash and securities to tap for its European telecoms expansion plans, Hutchison Group Managing Director Canning Fok told Reuters in a recent interview.

BNP Prime Peregrine analyst Adrian Ngan has revised upward his 12-month target price for the share to HK$200.

Most bank shares have underperformed the market in recent months, due to concerns about growing competition and a squeeze on margins in a rising interest rate environment.

Despite Friday's quarter percentage point hike in local rates, banks were looking attractive.

"Valuations are quite attractive, particularly of the smaller banks, because they have underperformed and because while nominal rates are up, real rates are coming down," said Philip Niem, banking analyst at HSBC Securities.

The market would be watching for the 1999 results of the Bank of China Hongkong-Macau Regional Office, due out on Tuesday, Niem said.

The Bank of China, together with its sister banks in Hong Kong, were seen as likely to seek a market listing in future.

Investors would also be paying close attention to the conclusions of the meeting of the Organisation of Petroleum Exporting Countries (Opec) on Monday.

A senior Gulf official said on Saturday that Opec oil producers negotiating extra oil supplies are near a deal to lift crude output by between one to 1.5 million barrels daily.

But, if Opec ministers decide not to raise oil output, it might call for adjustments to inflation and interest rate forecasts. The current consensus calls for just 25 to 50 basis point hikes in the United States in the remainder of the year.

Greater intra-day volatility was likely in the Hong Kong market in advance of the expiry of the March futures contract on Thursday. The contract closed up 80 points at 17,760 on Friday.-Reuters