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
sparked the inevitable speculation more consolidation is on the way. In Hong Kong, that interest has helped fuel a surge in
, shares of which rose nearly 19% last week. It now has the largest market capitalization on the Hong Kong bourse, knocking off
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.
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
Stone Electronic Technology
Meanwhile, in a move that could counter the power of MSCI,
Standard & Poor's
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
indices and funds," says Shareza Yusof, fund manager at
Aberdeen Asset Management Asia
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.