Skip to main content

TOKYO -- A lot of re-evaluation is occurring in Hong Kong these days, and, for once, it's not over the price of real estate.

Investors around the world have been in a tizzy over telco valuations after the deal between Germany's



and Britain's

Vodafone AirTouch

(VOD) - Get Vodafone Group Plc Sponsored ADR Report

sparked the inevitable speculation more consolidation is on the way. In Hong Kong, that interest has helped fuel a surge in

China Telecom

(CHL) - Get China Mobile Limited Sponsored ADR Report

, shares of which rose nearly 19% last week. It now has the largest market capitalization on the Hong Kong bourse, knocking off

HSBC Holdings



China Telecom had been doing well irrespective of the Mannesmann-Vodafone deal. Shares in the company have surged a whopping 118% over the past three months and analysts expect even higher share prices. Only 5% of China's 1.2 billion people own mobile phones, illustrating the potential for growth. The firm already has monopolies in two of China's richest provinces, Guangdong and Zhejiang, and is expected to increase profits by 35% to 8.69 billion yuan ($1.05 billion) for 1999.

To be sure, investors are likely to take profits in China Telecom after the surge this week. However, with about 25% of total shares available on the secondary market, any selling will likely be quickly matched with bids.

TheStreet Recommends

Adding to the enthusiasm over China Telecom is speculation the firm will eventually be included in

Morgan Stanley Capital International's China Free

index. Many fund managers use the MSCI indices as benchmarks for their funds. Any new addition will entice some managers to include those firms in their own portfolios and most likely push up the stock price.

MSCI won't announce any potential changes until May, so the guessing will continue for another few months. Other possible entrants include

Legend Holdings




Stone Electronic Technology


Meanwhile, in a move that could counter the power of MSCI,

Standard & Poor's

announced its

Global 100

index, which includes some of the world's top multinational companies as measured by the size of their international operations, market capitalization and level of brand recognition.

Most fund managers greeted this new index with a yawn since it includes firms that are already well known and are included in other indices. In addition, recent favorite tech plays aren't included, which could cause many fund managers to look the other way.

"If you're talking on a country-by-country basis, it's much better to look at regional-specific indices. For Japan, we're talking

Nomura Securities'

indices and funds," says Shareza Yusof, fund manager at

Aberdeen Asset Management Asia

in Singapore.

Although Yusof, who manages several Asian equity funds that total over $480 billion, does not track a particular index to pick shares, he said a new stock that is added on a Nomura index has the potential to jump 10%. In addition to Nomura fund managers buying these shares, the notorious army of Nomura salesmen will be pushing the stock to individual customers. (For a look at Nomura's indices, check out its English Web site at

If S&P doesn't want its new index to sag like recent Hong Kong property prices, it may need to do a little re-evaluating as well.