Hong Kong shares close lower as properties turn weak; China banks up UPDATE

Hong Kong shares close lower as properties turn weak; China banks up UPDATE

	Published : Tue, 08 Jan 2008 09:55 By : Agencies Print this Story

HONG KONG (XFN-ASIA) - Share prices closed lower as property stocks turned weak in late trade, offsetting gains in China banks following positive 2007 earnings guidance from China Merchants Bank.

Cathay Pacific was up after China Eastern Airlines' (CEA's) minority shareholders rejected the mainland carrier's proposed stake sale to Singapore Airlines (SIA) and Temasek Holdings.

Cathay said it will consider joining Air China and its parent China National Aviation Corp (CNAC) for a potential strategic partnership with CEA if the SIA-Temasek deal is rejected by CEA shareholders.

Air China fell sharply amid the prospect of a new bid for the CEA stake.

Among other stocks in focus, China Coal was up over 2.6 pct after announcing plans to issue up to 1.525 bln A-shares for a Shanghai listing. The company also forecast over 87 pct rise in 2007 profit.

The Hang Seng index closed down 66.59 points or 0.25 pct at 27,112.9, off a low of 27,088.7 and high of 27,637.6.

Turnover was 114.87 bln hkd.

'The market reversed its gains as property counters saw profit-taking in late trade,' said Tony Tong, deputy head of research at China Everbright Securities.

'The market did not have very clear direction, with investors just trading for the short term,' he said.

Tong said investors are opting to lock in profits at every opportunity due to uncertainties over the US economy and markets.

He noted that the US sub-prime problem is still weighing on sentiment, while China is expected to announce new credit-tightening measures.

'I expect the market to remain volatile in the near term,' Tong said, noting that investors will watch upcoming US economic indicators closely.

Among large-caps, HSBC was up 0.5 hkd or 0.39 pct at 128.30, HKEx lost 1.4 hkd or 0.66 pct to 210.0, China Mobile was down down 0.3 hkd or 0.22 pct at 134.0 and China Life down 0.4 hkd or 1.04 pct at 38.2.

Properties turned lower, with the sectoral sub-index losing 457.39 points or 1.19 pct at 37,995.07.

Sun Hung Kai was down 1.0 hkd or 0.59 pct at 168.80, Wharf was down 0.15 hkd or 0.33 pct at 45.0, and Cheung Kong lost 4.40 hkd or 2.99 pct at 142.60, while Henderson Land rose 1.30 hkd or 1.7 pct to 77.60.

Cathay Pacific was up 0.25 hkd or 1.25 pct at 20.25 and Air China was down 0.32 hkd or 3.04 pct at 10.2 after China Eastern shareholders rejected the SIA-Temasek deal.

Tong said the rejection of the SIA deal, although expected, will bring uncertainty to CEA's planned strategic partnership with another carrier.

'CNAC will do what it said, making a counter bid of at least 5 hkd per share for CEA. But a higher bid, which may still be lower than CEA's H-share price, would not necessary mean the stake sale will go smoothly,' he said.

Matthew Kwok, research head at Tanrich Securities, said the whole affair is still very uncertain as CNAC's counter-offer may not be accepted by the CEA board and may also face resistance from the Chinese government.

'The CEA board does not welcome its rival's offe,' he said, also adding 'I don't really think China would like to see only one major airline dominate the mainland market.'

CEA said after the shareholders' meeting that rejection of share sale plan will delay the carrier's development.

China banks posted strong gains after China Merchants Bank projected 110 pct rise in 2007 net profit.

China Merchants Bank was up 0.9 hkd or 2.99 pct at 31.0, off a high of 32.7, while China Construction Bank was up 0.21 hkd or 3.5 pct at 6.21, ICBC rose 0.03 hkd or 0.57 pct to 5.3, Bank of Communications was up 0.12 hkd or 1.19 pct at 10.18 and Bank of China added0.01 hkd or 0.27 pct to 3.66.

China Coal Energy was up 0.65 hkd or 2.63 pct at 25.4, off a high of 26.3, after news that it plans to issue up to 1.525 bln A-shares for a listing in Shanghai, possibly raising about 37 bln hkd.

The coal firm also forecast 87.7 pct growth in 2007 net profit to 5.1 bln yuan under Chinese accounting standards, while under international accounting standards the profit is seen at not less than 6.01 bln yuan compared with 3.17 bln in 2006.

The China Securities Regulatory Commission announced yesterday that it will review the company's A-share IPO plan on Friday.

Local electricity firms were mixed after news that they agreed to a lower rate of return under the government's new regulatory regime for the power sector.

CLP was up 0.65 hkd or 1.14 pct at 57.85 and Hong Kong Electric was down 0.65 hkd or 1.47 pct at 43.65, giving up early gains.

The government announced yesterday that the two companies' permitted rate of return on assets and investments will be cut to 9.99 pct from the current 13.5-15 pct. The cut will take effect from Oct 1 this year for CLP Holdings and on Jan 1, 2009 for Hongkong Electric.

Dealers noted that the announcement has removed a major overhang on the stocks.

MTR fell 0.85 hkd or 2.44 pct to 34.05 after surging in recent sessions on expectations that its earnings will get a boost from increased property development projects along new rail routes.

Gome Electrical surged 1.23 hkd or 6.43 pct at 20.35 after Citigroup raised its target price on the stock to 24 hkd from 17 following a revision in earnings forecasts.

The Hang Seng China Enterprises index finished up 68.97 points or 0.44 pct at 15,659.71.

(1 usd = 7.80 hkd)

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