H shares plummet 12%

HONG KONG: The global stock market crash may be an opportunity for Hong Kong investors to snap up cheap stocks, market watchers say, as most expect panic selling to ease in the coming weeks.

Succumbing to the global market tumble sparked by heightened worries a US recession may spread to Asian economies, the Hang Seng Index shed 8.65 percent yesterday. H shares were the hardest hit, plummeting 12 percent - the largest single day drop in 10 years.

Dejected investors monitor stock quotes at a securities trading firm in Shanghai yesterday. Stocks tumbled, with the benchmark index posting its biggest two-day decline on record, on concern a US recession will curb demand for the nation's exports. Bloomberg News

"The drop was more than expected and the rapid plunge is not reasonable at all," said Patrick Yiu, CASH asset management associate director. "The fall is not related to the fundamentals, but rather sheer irrational panic."

The local bourse has seen steep declines for two consecutive days, falling more than 3000 points in just two hours yesterday, as spooked investors raced to dump stocks. But Simon Lam, research director of Christfund Securities, said investors should look beyond the current grim market sentiment and take advantage of the opportunity to sweep up cheap stocks.

"After sustaining such a big fall, many stocks are now too cheap," Lam said. He said the fundamentals of many local companies that are not exposed to US subprime, such as utilities and highway companies, remain positive. Lam expects the Hong Kong bourse to regain some lost ground by the end of the week. "The price to earnings ratio for the Hang Seng Index is at 16 times right now, which is very reasonable. This is the time to buy."

But not all market analysts are as optimistic. Conita Hung, Delta Asia Securities head of research, said it wasn't clear whether the local bourse had hit rock bottom yet. "My advice is that investors already holding a lot of stocks in their portfolio should stay put because the market may take another dip," she said.

Kenny Tang Sing-hing, Tung Tai Securities associate director, agreed. He said investors should not dump all their assets irrationally, as he expects the selling spree to ease in the coming weeks. "Anticipation of a US interest rate cut will stabilize global market conditions somewhat in the coming weeks," he said. And for new investors who see this as the time to enter the market on the cheap, Tang urged a gradual approach.

"Since stock market conditions are still very volatile, it might be advisable to take a step-by-step approach rather than dumping all your money in all at once," Tang said. He expects the index could hit a low of 20000 points before it finds support.

Major blue chips in telecommunications, mainland utilities and stocks not directly exposed to the US subprime mortgage meltdown are tipped as bargain buys by market watchers.

Ben Kwong, director of KGI Asia, said investors should not expect a V-shape market rebound under current bearish conditions, but some stocks are a good buy as the index has fallen too far. "The underlying profit prospects have not changed a bit, so many stocks are a good buy," he said.

But Kwong urged investors to be vigilant, as he believes the market has entered a year of correction. "Especially for H shares that skyrocketed last year, we can expect downward corrections ahead," he said.