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Merger saga expected to lift HK stocks

HONG KONG: The Cable & Wireless HKT merger saga should fuel momentum in the Hong Kong stock market this week, analysts said, but Friday's fall in New York could limit gains.

"A lot of people are expecting news from PCCW and C&W HKT. When trading resumes on Monday, these two shares will probably rebound, supporting the market," Ricky Tam, senior research manager at Delta Asia Securities, said.

An announcement by Pacific Century CyberWorks Ltd 1186 on Friday that it was assessing an investment in C&W HKT thrust the market's three-week rally into overdrive and to record highs.

The blue chip Hang Seng Index soared to 17,653.65 on Friday afternoon, before easing to end the day up 3.18 percent at a record close of 17,380.30.

Over the four-day holiday shortened week, the blue chip index gained 1,412.3 points, or 8.84 percent.

Friday's record was set with turnover of HK$32.88 billion, the heaviest trade since the government's intervention in the market to defend the Hong Kong dollar on August 28, 1998, when turnover hit HK$79 billion.

Excluding that day, turnover was the heaviest since October 23, 1997, when it reached HK$34.03 billion.

After Hong Kong market hours, parent Cable & Wireless Plc said PCCW had approached it about a merger with its Hong Kong unit, adding that it was continuing talks with Singapor Telecommunications Ltd TELE about a possible merger.

On Saturday, C&W HKT said PCCW had made no firm proposal and that C&W HKT was still talking with SingTel.

Trading in the shares of both PCCW and C&W HKT soared prior to their Friday afternoon suspension C&W HKT closed 22.7 percent higher at HK$21.65, and PCCW hit a record high of HK$25.50, then eased to close 5.3 percent higher at HK$24.65.

C&W HKT has applied to the stock exchange for trade in its shares to resume on Monday.

Analysts said Friday's fall in New York could take their toll. The Dow Jones Industrials Index closed 218.42 points, or 2.05 percent, lower at 10,425.21 on Friday, for a total loss of 538 points over the week.

The Hong Kong market largely anticipated the Hong Kong Association of Banks' quarter-percentage-point hike in deposit rates to 4.0 percent from 3.75 percent on Friday, in line with a hike in U.S. Federal Reserve rates earlier in the month, analysts said.

Many analysts believe that despite the clear upward trend in U.S. and Hong Kong rates, the market will continue its record-breaking run in the coming week.

"We are going to break through 18,000. The general trend is still positive," said Adrian Ngan, head of research at BNP Prime Peregrine.

One sign of that trend was the 450-point premium in the February Hang Seng index futures contract which closed at 17,830 on Friday, Ngan said.

Technically, the rally looked intact, chartists said.

"The chart looks okay as long as we stay above 17,200," said technical analyst Calvin Chan at J&A Securities.

That level offered good support and resistance to the rally lay at 18,200, Chan said.

The market's relatively narrow breadth of the past few trading days could improve with rotational buying which would push the index higher.

"If we get any news that Hutchison and Cheung Kong are involved in the (C&W HKT) deal, that will help the index a lot," Chan said.-Reuters