Buyers lining up

The sharp pullback on Wall Street overnight pressured local stocks on Wednesday, but active bargain hunting was witnessed throughout the trading hours. In fact, despite hovering in negative territory for the entire session, both the HSI and the HSCEI finished the day well above their respective day low established in early trading. Reflecting renewed subprime worries and easing crude oil prices, HSBC Holdings (0005.HK, $143.80, HOLD) and CNOOC (0883.HK, $9.39, HOLD) suffered from heavy selling on Wednesday, dragging the blue-chip index down by 111 points ( 0.5%) to a close of 23,362. The H-share index, meanwhile, fell 81 points (0.6%) to end just below the 13,400-point level on the back of setbacks in PetroChina ( 0857.HK, $12.10, HOLD) and mainland banks. Nonetheless, the local market did demonstrate strong bouncing power that saw both benchmark indexes crawl back markedly from a loss of over 240 points intraday. On the corporate front, China airlines buckled against the market pullback as investors bet on their turnaround in operations, which sent share prices of Air China (0753.HK, $7.27, HOLD) and China Southern Airlines ( 1055.HK, $6.38, SELL) up sharply by 17.6% and 10.8%, respectively. Following the announcement of China Eastern Airlines (0670.HK, $3.73) last week that it may report a profit for 1H07 after incurring a substantial net loss in 1H06, Air China announced that it expects its 1H07 net profit to jump more than 20 times yoy on traffic growth, increased investment gains and renminbi appreciation. China Southern Airlines also announced a positive profit alert after market closed on Wednesday.


Our View
Wednesday's market setback ended the four-day rising streaks in the HSI and the HSCEI that had put on solid gains of 631 points ( 2.8%) and 682 points (5.3%), respectively. We nonetheless expect the market uptrend to resume near term on the back of strong liquidity. After all, market turnover surpassing $100b on Wednesday indicated that there is plenty of buying power lining up, which should support the local market to regain its upward momentum. In addition, the mainland markets appear to be heading for a breakout on the upside, which should bode well for investment sentiment in the local bourse. The bulls seem to have the upper hand at the moment.