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HK stocks seen mixed, eyeing rates, tax

HONG KONG: Hong Kong stocks are expected to be erratic this week as rate-sensitive blue chips falter, telecoms and non-index techs heat up and the market braces for a possible sales tax to be announced along with the new budget.

"The market will be quite mixed because we are still within a very broad consolidation," said Alex Wong, research manager at OSK Asia Securities.

"The bias is probably on the upside because turnover is quite firm and the tech sector is strong, but initially we will consolidate further," he said.

Analysts predicted a wide range of 16,700 to 17,700 for the benchmark Hang Seng Index , which finished a lacklustre week up a strong 348.43 points or 2.06 percent at 17,285.24.

But it made barely a 0.50 percent gain on the week that saw the long-awaited merger offer from Richard Li's Pacific Century CyberWorks (PCCW) for Cable & Wireless HKT and the debut of his father Li Ka-shing's Web portal tom.com on the Growth Enterprise Market (GEM) second board.

MERGER STOCKS TO STABILISE

Blue chip heavyweight China Telecom (Hong Kong) was expected to hold its strength on heavy institutional demand for telecom issues despite rumours it was planning a placement.

C&W HKT was expected to stabilise after it capped a soft week with a 6.5 percent rebound on Friday to HK$23.70 as investors waited for more news about its merger with PCCW.

"Traditional blue chips will come under some pressure as there will be some reshuffling of fund managers' portfolios into tech stocks, PCCW and C&W HKT," Wong said.

Analysts said the direction of rate-sensitive financial and property stocks would depend largely on Wall Street's performance, while technology plays would remain in focus.

"You're tending to get money moving from the lacklustre stocks, which are basically good companies, to companies regarded as the exciting ones which are telecom or Internet-related," said Howard Gorges, director at South China Brokerage.

On Friday, the Dow Jones Industrial Average climbed 202.28 points, or 1.99 percent, to 10,367.20 points, its highest close in more than two weeks.

RETAIL SECTOR EYEING BUDGET SPEECH

Financial Secretary Donald Tsang's budget speech for 2000, scheduled for Wednesday, was widely expected to include the introduction of a sales tax, which would have a negative impact on the market.

"If there is a sales tax, it will hit across the board with severe pressure on retail sector stocks," said Wong.

But Asia Financial Securities research director James So said the effect would be brief and even positive in the long term.

"A fall will be short-lived because everybody knows the government needs to find ways of making more money, and in a perverse way it may good for the marketplace because deflationary pressures could be eased somewhat," he said.

IPO FEVER

After the frenzied response to tom.com, the Hong Kong market was expected to dive into the IPOs of mobile telecoms operator SUNDAY and Sun Hung Kai Internet unit SUNeVision. Both issues will each be larger than tom.com's 428 million new shares.

"These will be very hot, but SUNeVision will be more popular than SUNDAY because it will have its parent's strong support," Wong said.

SUNDAY was expected to list on Hong Kong's main board and on the Nasdaq market in the week of March 13, according to sources close to the IPO, while SUNeVision was expected to begin trade on the GEM board on March 17.-Reuters