Local and Global Issues Hit Asia

A rough week ends on a down note for most of the region's exchanges.
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Asian markets finished the week in bearish territory, with most indices weighed down by global credit concerns, while Hong Kong got punished on rumors that local tycoons have been selling big positions of blue chip stocks. Only China managed a rebound, which came in afternoon trading when a morning rumor that Beijing would increase interest rates on Friday, proved to be untrue.

In Hong Kong, the Hang Seng fell 180 points, or 0.65%, to 27,563, while in China, the Shanghai Composite Index jumped 50 points, or 1%, just past the key psychological 5000 benchmark, to 5007.

"The Hong Kong market is experiencing a 'correction stage' right now, as we are seeing major investors selling into the market," says Yoji Takeda, who manages $1.2 billion for RBC Investment Management Asia in Hong Kong. "There is also a weaker 'H' share market because of China's continuous tightening policies."

Takeda says that while the weakness in U.S. financials is having a dampening effect on equities on the island, for now local concerns and rumors are having the more serious bearish effect.

Friday's losers were mixed, though financials sold off the most.

Ping An

tumbled 3.5%, to HK$82.30, while

China Life Insurance

(LFC) - Get Report

fell 1.9%, to HK$40.65,

Hang Seng Bank

(HSNGY)

slipped 1.8%, to HK$152.90, and

Hong Kong Exchanges

(HKXCF)

lost 0.3%, to HK$225.40.

Among property stocks, trading was mixed however, as some investors looked for bargains on the back of the Federal Reserve's easing of U.S. interest rates.

Sun Hung Kai

(SUHJY)

sank 0.9%, to HK$10.50, but

Cheung Kong

(CHEUY)

bounced upwards 0.36%, to HK$139.90, while

Hutchison

(HUWHY)

rebounded 0.5%, to HK$82.20.

Hang Lung Properties

(HLPPY)

was one of the day's biggest gainers, jumping 0.9%, to HK$34.50.

Despite broad market bearishness, the mixed results in financials and property stocks may point to a steadying in the price of the U.S. ETF

iShares Hong Kong

(EWH) - Get Report

, since it is weighted 43% across all of the companies above, except the insurers. This week, the ETF has lost more than 4%, to 22.20 at the end of trading Thursday in New York.

Telecoms were mostly down.

China Mobile

(CHL) - Get Report

dipped 1.5% in early trading, but steadied at the close, down just 0.15%, to HK$137.20, while

China Unicom

(CHU) - Get Report

stayed lower, giving away 1.5%, to HK$15.40, and

China Telecom

(CHA) - Get Report

dived 1.7%, to HK$5.72.

China Netcom

(CN) - Get Report

, however, leapt 2.8%, to HK$24.10. Brokers attributed the rise to a larger trading volume, which was 49% higher than Thursday, at 13.04 million shares traded, and the company's mid-cap status, which makes it less vulnerable to the blue-chip dominated selling spree.

Shares in Hong Kong have been the most severely impacted by the sell-off this week, falling 3.5%. Still, most local investors expect a sharp rebound in 2008. Local Chinese language newspapers today forecast a level of 40,000 points for the Hang Seng by mid next year.

"I don't think 40,000 is realistic, but it does mean people are not worried," says Khor KL, director of dealing at A One Investment Company in Hong Kong. "Investors are buying up property shares, and are very calm. At least for the time being, there is no panic."

Khor adds that Chinese investors are considering shares cheap once they decline between 5% and 10% in value right now.

That sentiment was reflected in China, where energy and consumer stocks led the surprise about-turn in the Shanghai Composite Index. Among Chinese shares listed as U.S. ADRs,

Aluminum Corp of China

(ACH) - Get Report

leapt 1.9%, to 37.60 yuan, while

Yanzhou Coal Mining

(YZC)

rose 1.4%, to 19.95 yuan, and

PetroChina

(PTR) - Get Report

remained flat, up 0.07%, to 30.55 yuan.

China Eastern Airlines

(CEA) - Get Report

lost 1.83% however, to 18.82 yuan, while in Hong Kong, the shares gained, by 3%, to HK$6.73. The Hong Kong listed shares fell around 7% this week, after Singapore Airlines refused to raise its recent offer price for a stake in the Chinese carrier. As a result, Citigroup upgraded the stock to "buy" on Friday, citing the losses a result of unnecessary "panic selling".

A Chinese interest rate increase of 27 basis points, to 7.29%, is expected by many this weekend in Beijing, after data this week showed inflation grew to 6.9% in November, and as a follow to last week's increase in the reserve ratio requirement for banks.

Stocks in Japan continued to bleed into the red, as the Tankan -- the country's quarterly economic survey -- showed weaker than expected economic growth, and investors still mulled the fate of financial stocks on U.S. credit concerns. One prominent measure, the business diffusion index, fell to plus 19 vs. plus 23 in September.

The Nikkei slipped 22 points, or 0.14%, to 15,514. Hardest hit were

Mizuho Financial

(MFG) - Get Report

, which plunged 4.9%, to 561,000 yen,

Canon

(CAJ) - Get Report

, tumbling 1.5%, to 5,510 yen, and

Kobe Steel

(KBSTY)

, off 2.4%, to 361 yen.

"Japan is certainly cheap, but we don't see much catalyst there to trigger the market for time being. The domestic economy remains weak, and largely depends on the U.S. situation," says RBC's Takeda.

The yen fell 1.49, to 113.02 vs. the dollar in Asian trading, it's lowest level in more than a month.

On the question of whether the subprime fiasco impact on Asian markets is near an end, Takeda says investors "haven't seen the bottom of the cycle," which will come sometime in the first quarter next year.

Elsewhere in Asia, markets were also down. The South Korean Kospi fell 1.1%, to 1,895, while India's Bombay Sensitive Index lost 0.4%, to 20,030. The Indian market has been one of the few Asian markets to show a gain this week, of 1,000 points, or 5%.

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at

www.theglobalperspective.biz

. He lives in New York.