After another turbulent week, Hong Kong hit a record high. Other markets ended Friday broadly in the green in Asian trading, on strong earnings and hopes of a U.S. interest rate cut. Hong Kong's Hang Seng closed up 550 points, or 1.84%, to 30,405. That's the index's first time closing above the 30,000-point benchmark. In neighboring China, the Shanghai Composite Index rose 27 points, or 0.49%, to 5589.63. "We expect another 50 basis-point rate cut in U.S. for this year, and any rate cut has an impact on Asia," says Server Kucukakin, senior economist at ABN Amro. "It will stop capital flight out of the region because it will be less profitable to bring capital back into the U.S." Kucukakin adds that if the Federal Reserve lowers rates again, this may also stem a significant downturn in Asia, should one strike. "When you compare this period to 10 years ago, the Federal Reserve was tightening during the Asia crisis. Now, if there are any problems, they won't be as bad for the region as the Fed is easing." Mainland Chinese markets have been weaker than Hong Kong since Wednesday, as investors expect Beijing might raise interest rates this weekend to cool inflation. Still, the big gains in Chinese earnings have been mainly in the financial sector, as a result of fees from increased IPO listings. For the third quarter this year, China Citic Bank saw an increase in earnings of more than eight times, to 4.15 billion yuan, or $554 million, vs. 494.71 million yuan, or $66.07 million, a year earlier.
ICBC, the mainland's largest bank, said its net profit for the first nine months of this year grew 66% over 2006. In Hong Kong, Ping An Insurance ( PIAIF) said its third-quarter profit rose to 3.6 billion yuan, or $480 million vs. 808 million yuan, or $107 million a year earlier. Similarly, earlier in the week, China Life Insurance ( LFC) said its income from premiums rose 10.5% on the year to 22.75 billion yuan, or $3 billion. In Shanghai, shares in China Life Insurance finished the day up 1.63% to 70.35 yuan, while they rose 0.49% to HK$51.45 in Hong Kong. The announcements are good news for the iShares FTSE/Xinhua ( FXI) exchange-traded fund, which is weighted more than 40% in Chinese financials, including a weighting of 8.74% in China Life Insurance and 5.89% in Ping An Insurance. In the telecom sector, China Mobile ( CHL) finished up 0.85% to HK$154.20 in Hong Kong trading, after reporting a rise in earnings of 38% earlier this week. Rivals China Netcom ( CN) and China Unicom ( CHU) rose 1.74% and 5.31%, respectively. As for Japan, NTT Docomo ( DCM) rose 1.98% to 154,000 yen, shrugging off Thursday's losses after reporting a decrease of 20% in third-quarter earnings. In other exporters, Sony ( SNE) gained 1.98% to 154,000 yen, while Canon ( CAJ) jumped 2.5% to 5,720 yen, helping to bring the Topix into green territory for the second time this week, by 26 points, or 1.6%, to 1573.97. The Nikkei 225 also rose 221 points, or 1.36%, to 16,505.
Korea's Kospi gained 51 points, or 2.6%, to 2028, after Warren Buffet reiterated favorable comments about the market's relative undervaluation compared to other regional markets. In particular, he mentioned Posco ( PKX) and Hyundai Steel, in which he said he owns stakes. Shares in Posco continued this week's bullish trend, rising 1.08% to 658,000 won. Talk of a bubble in China is still circulating among dealers, but most now expect a downturn to happen later rather than sooner. On Thursday, China said its GDP growth eased to 11.5% in the third quarter from a record 12% in the second quarter. "When we take China and how it's been developing in the past couple of months, I'm inclined to say it's not sustainable. But when you look at the downturn we're still not there yet," says ABN Amro's Kucukakin. "Most of the investment in the country is not made by
reinvesting profits, but it's made by government," he adds. "You call this bureaucratic entrepreneurship."