Hong Kong Financial News

The Hang Seng Index has got back above 14000, closing at 14330 today. Will this last? Frankly I believe that this is up too fast. It’s up more than 3000 points in just 3 days. The sentiment in Asia Pacific today certainly helps with the rise with US lowering 0.5% of interest rate. But I believe it is also due to the settlement of October futures today. I believe there is a lot of short covering which forces shares to go up these days.

This V-shape bounce doesn’t really signal the end of the bear cycle. I would think that the end of bear cycle would be when there are no more big actions in the market, when volumes are all dried up. I won’t be surprised if HSI will go back down to 12000 this year.

October 30th, 2008 | Tags: bear market, hang seng index | Category: General Trends | Leave a comment

Kowloon Development is off 42% today. Similar to Citic Pacific (267), the Company has announced that from 1 January 2008 to 22 October 2008 they have incurred a loss of HK$ 3.7 billion from over-the counter contingent forward agreements. So far only HK$ 688 million has been accounted for in their half year report. So there will probably be an additional HK$ 3 billion charge in their 2008 annual report.

According to the announcement, the company “has liquidated a majority of its financial investments” and “unwound a substantial portion of its forward agreements” in Oct 2008. I suspect this may be a big reason why the stock market can drop so much recently. Corporates, private banking customers are just unwinding their derivative contracts that have caused them so much trouble this year. People are receiving margin calls, they can’t do much but to cut their positions.

One thing interesting to see in their announcement is that the announcement is trying to avoid the use of words such as “accumulator” or “decumulator”. The way they describe how their so-called “over-the counter contingent forward agreements” work are just like the accumulator / decumulator contracts that every one in Hong Kong has talked or criticized about. Their forward agreements allow the company to “purchase or sell certain listed equity investments at a fixed price over a 52-week period.” This is exactly what an accumulator / decumulator does!

Kowloon Development, stop pretending! You are just like a lot of see-lais or housewives who have incurred big losses buying accumulator products.

October 28th, 2008 | Tags: 256, 34, accumulator, CITIC Pacific, decumulator, derivative loss, Kowloon Development | Category: Companies | Leave a comment

It seems like there is no bottom to this market. If it continues to drop 1000 points every day, then the HSI will be back to zero in two weeks! Today, Hong Kong shares dropped 12.7% — it is the biggest drop since 1997. At one point the index dropped more than 16% and it would be the biggest drop since 1989.

A few possible reasons for this big drop:

i) continual selling by hedge funds and financial institutions due to deleveraging and redemption

ii) panic selling by investors

iii) loss cut due to margin calls

Even though it seems as if there is no support level, I do believe that we are getting very close to the bottom… I believe there will be good buying opportunities soon…

October 28th, 2008 | Tags: deleveraging, hong kong stock market, margin calls, Panic Selling, redemption | Category: General Trends | Leave a comment

No more sugar-glazed donuts in Hong Kong soon! US-based Krispy Kreme (KKD) franchisees in Hong Kong are getting liquidated. This time the financial turmoil has gone through a full circle: the crisis first started with subprime in the US, then it spread to HK, and now it is affecting a US-based company!

There are seven stores in Hong Kong. Five will be closed immediately and the other two in the Hong Kong International Airport will remain operational until further notice.

I am always amazed at how these donuts can become more popular in Asia than in the US. In the US, Krispy Kreme was a fad: every one wanted to try their deep-fried sugar-glazed donuts at least once, but then after a while people seem to forget about it and become worried about the unhealthiness of these sugar blocks. But, to my amazement, I saw in Tokyo last year that there were actually people lining up for Krispy Kreme during lunch! And in Hong Kong, the stores were definitely more packed than those in the US.

Surprisingly KKD is up 4% at this very moment and is not affected by the HK liquidation at all. But I am happy to know that soon the smell of those oily deep-fried donuts will disappear in Hong Kong.

October 27th, 2008 | Tags: Hong Kong, KKD, Krispy Kreme, liquidation, Tokyo | Category: Companies | Leave a comment

CITIC Pacific dropped another 25% today to close at $4.91. Today’s newspapers seem to put the blame of the forex exchange option losses on the chairman’s daughter, Frances Yung. I’m not sure what good it can make by putting the blame on the chairman’s daughter. The damage has already done to the company and shareholders have suffered already. There is no point putting the blame on someone–and the chairman’s daughter is probably a very easy target because the media just like the sensational idea of an out-of-control chairman’s girl bringing down the company.

David Webb continues to blast CITIC Pacific by issuing another post (http://www.webb-site.com/articles/citicbomb2.htm). And both SFC and HKEx are now investigating the company and the credit agencies are in the process of downgrading the company (I always wonder why they always choose the reactive, rather than proactive, approach in dealing with scandals. What’s the use of credit agencies if they only downgrade companies only when the entire world already knows that something bad has happened to the company?

I really wonder if there will be more scandals on exotic option blowups from other HK-listed companies… Seriously, I’m not surprised if there are a few more saying that they suffer big losses because their directional bets on shares or foreign currencies have gone awry.

October 23rd, 2008 | Tags: 267, CITIC Pacific, credit agencies, David Webb, frances yung, hkex, SFC | Category: Companies | Comments (1)

Today CITIC Pacific dropped 55% and it is closed at HKD 6.52 (from HKD 14.52). HKD 17.55 billion of their market cap has been evaporated! Interestingly, this 17.55 billion is very close to the HKD 15.5 billion provision that they have made on the foreign exchange contract.

Also, today David Webb (http://www.webb-site.com/articles/citicbomb.htm) has issued a report on CITIC Pacific, scathing the company for their lack of internal control and that the management should have made this announcement as soon as they were aware of this situation. According to their announcement, they have known about this problem since 7 September 2008. They are not telling the public about this situation for one and a half months.  CITIC Pacific has dropped a whopping 74% since the day they knew of  the situation. People may wonder if there is any insider making big money from this situation!

October 21st, 2008 | Tags: 267, CITIC Pacific, David Webb, Webb Report, webb-site | Category: Companies | Comments (1)

CITIC Pacific (267) has just issued a big profit earning this afternoon. This is not due to their main businesses, but rather, they have bet wrongly on foreign exchange rates. They have bought massive foreign currency target redemption forward contracts and daily accrual (accumulator) contracts for AUD and EUR. All was working very well in the first half of the year, but things start to turn bad with the big and sudden drop in AUD and EUR in the past few weeks.

CITIC Pacific has exposures to currencies such as AUD and EUR because of their mining projects in Australia. On the other hand, they have bought contracts with notional values that are a lot higher that what they need. A hedging tool, that was supposedly good for the company, has turned into a tool for speculation. When speculation turns sour, shareholders lose their shirts. CITIC Pacific has realized a loss of HKD 807 million on these contracts from 1 July to 17 October, and they believe they will continue to loss money on these contracts until 2010 since not all contracts can be terminated or unwound. At the same time, they are making a provisional loss of HKD 15.5 billion for these contracts.

This case is very similar to what is happening in Korea: With a 40% drop in Korean Won from its height, a lot of SMEs in Korea are suffering because of the foreign exchange contracts they have with the banks. Should companies actually take a view on foreign exchange? Maybe not… since even market professionals can’t predict what is going to happen in the next few days.

I expect a big drop in 267’s share price tomorrow!

October 21st, 2008 | Tags: 267, accumulator, AUD, bets, CITIC Pacific, daily accrual, EUR, foreign exchange, loss | Category: Companies | Comments (1)

According to Apple Daily, HSBC has petitioned to have provisional liquidator appointed for 3D-Gold last Friday and Deloitte has confirmed that they have been appointed as the provisional liquidator. This is definitely not a surprising move, considering i) their shocking announcement about missing inventories and trade receivables that are hard to collect and ii) the police is currently investigating the disappearance of gold bars that are worth around HKD 180 million. Rumor is saying that 3D-Gold owes HSBC HKD 100 million.

3D-Gold is still open today. Will their operation be eventually shut down by the provisional liquidator and this will force more people into unemployment?

October 19th, 2008 | Tags: 3D Gold, 870, Deloitte, HSBC, provisional liquidator | Category: 3D-gold, Companies | Leave a comment

There is another piece of news on the fall of another factory in the Pearl River Delta region owned by Hong Kong-listed company. BEP International’s Shenzhen subsidiary, Bailingda Industrial (Shenzhen) Co., Limited, which manufactures small home electrical appliances like irons and water boilers, will close its Shenzhen factory this Monday, affecting around 1500 workers. They expect the closure of this subsidiary would lead to intervention such as forced liquidation from the PRC local authorities. On the other hand, they expect their listed entity is not affected and from now on it will move its focus from manufacturing to trading of home electrical appliances and certain electronic components such as valves and sensors. The listed company will start its trading business under a Hong Kong subsidiary called Smart Luck Trading Limited.

It is not too healthy to see companies being shut down every one or two day. It caught my surprise too that a 62-year old renowned home appliance retailer, Tai Lin, was insolvent and shut down last Friday. The financial crunch that got started from subprime in the US last year has spread to Hong Kong in full speed. I am definitely not surprised to see a few more well-known Hong Kong enterprises to go under in the next few months.

October 19th, 2008 | Tags: 2326, Balingda, BEP International, insolvency, liquidation, Smart Luck Trading, Tai Lin | Category: Companies | Leave a comment