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HK stocks end higher as Taiwan tension fears ease

HONG KONG: Hong Kong stocks closed higher after a roller coaster ride on Monday after the Taiwan president-elect's call for a "peace summit" with Beijing calmed nerves, but brokers expect market volatility to continue.

The benchmark Hang Seng Index, which was in negative territory for most of the day on jitters about cross-strait tensions, rose late in the afternoon, buoyed by China Telecom (Hong Kong) and its inclusion in the Morgan Stanley Capital International (MSCI) China Free Index.

While the blue chip index ended the day up 0.89 percent or 151.47 points at 17,234.46, after falling as low as 16,708.72, interest rate-sensitive banks and devlopers held it back ahead of a possible rate hike in the US on Tuesday. "Given the election results and the 700-point gain on Friday, the market is holding up surprisingly well," said James So, director of research at Asia Financial Securities.

"While everyone expects a quarter point increase from the Fed tomorrow, the local situation will remain volatile."

Local stocks rose after pro-independent leader Chen Shui-bian, who won on Saturday's election, called on Monday for a "peace summit" with Beijing.

Chen said he was ready to discuss Beijing's principle of "one China" but insisted the island must be treated as an equal in any discussions.

China has threatened to use force against Taiwan if the island declares independence.

A late rally by China Telecom (Hong Kong) boosted the benchmark index after the MSCI confirmed that China's largest mobile operater was one of 15 China-linked red chips to be added to its China Free Index.

While traders said China Telecom had already priced in the expected inclusion, investors wanted to buy the stock when it was relatively low.

"People don't want to be caught out so they're buying (China Telecom)," said Richard Offer, head of regional sales at Dresdner Morgan Grenfell. "It's mostly the European market coming in." China Telecom surged 7.0 percent or HK$4.75 to HK$72.00.

The red chip index added 2.43 percent to 1,579.5 points.

CITIC Pacific Ltd and China's largest computer marker, Legend Holdings Ltd, both gained on their inclusion in the index.

"Their fundamentals are strong," said So.

Interest rate-sensitive banks and developers, which came back into favour at the end of last week, dragged the market lower ahead of the likely quarter-point rate hike by the Federal Reserve.

Because the local currency is pegged to the US dollar, Hong Kong typically follows suit.

The Hang Seng Finance Index lost 1.84 percent and the properties index fell 1.34 percent.

Banking giant Holdings Plc dropped HK$1.50 to HK$88.50 while Sun Hung Kai Properties tugged developers down, falling HK$1.25 to HK$68.75.

Hong Kong's high-tech Growth Enterprise Market (GEM), whose new index was available for the first time today, fell 0.20 percent.

Sunevision Holdings Ltd, which is traded on the GEM and debuted on Friday, vaulted 6.6 percent or HK$1.00 to HK$16.10.

In the broader market, volume continued to be low. Total turnover was HK$10.1 billion, less than on Friday's turnover of HK$12.3 billion.

"Apart from the weak volume and futures, the Hong Kong market seems to be rallying, although there's not much conviction to the buying," said So.

Interest rate-sensitive stocks were likely to remain weak ahead of further news from the US So added.

But if the market can break above 17,300, stocks could move higher, said Kitty Chan, fund manager at APC Investment Services.

A total of 228 issues rose while 462 fell. -Reuters