Hong Kong shares open higher on bargain-hunting after firmer Dow

Hong Kong shares were higher in early trade Tuesday as investors were encouraged to pick up bargains after the Dow Jones Industrial Average finished overnight trade firmer.

Wall Street's benchmark index gained 0.2 percent on renewed optimism that the Federal Reserve will lower its key rates when it meets at end of the month to keep the US economy from slipping into recession. Speculation about a further rate cut was revived by weak December jobs data and a disappointing manufacturing report last week.

Late afternoon buying on the Hong Kong bourse on Monday, which reduced overall losses, also provided additional momentum to Tuesday's early trade.

"We saw strong buying momentum yesterday afternoon, mainly because of expectations of further rate cuts in the US and in Hong Kong," said Alex Tam, research analyst at CSC Securities HK Ltd.

"That will continue today."

At 10:22 am, the Hang Seng Index was up 243.16 points or 1 percent at 27,425.65.

The local market also gained support as Chinese investors took advantage of the price differential between H-shares traded in Hong Kong and corresponding A-shares traded on the mainland.

"The price gaps between A- and H-shares are at a historic high, so investors may deem Hong Kong shares quite cheap. Investors may turn to the theme of price differentials," Tam said.

The Fed has cut its interest rates by a cumulative one percentage point since September. The Federal Open Market Committee will meet again on January 29-30 to decide monetary policy.

The Hong Kong Monetary Authority, Hong Kong's de facto central bank, is expected to follow the Fed in cutting rates as the local currency is pegged to the US dollar. The authority also slashed its base rate by a total of one percentage point between September and December.

"The Fed is going to have a gradual, step-by-step easing of interest rates," Tam said. He dismisses speculation about a 50-basis point rate cut this month by the US central bank.

"The US is still facing rising inflation," he said.

Tam is predicting that the Fed will cut rates by a total of 75 basis points during this quarter.

Consumer prices in the US rose to its highest level in more than two years in November as oil prices reached record levels.

Property counters led the index higher on optimism for a further easing of borrowing rates, which should spur demand for real estate.

"Property stocks will benefit from declining interest rates," said Ben Kwong, chief operating officer at KGI Asia Ltd. "They will continue to outperform the market."

Sun Hung Kai Properties, Hong Kong's biggest developer, rose 5.60 Hong Kong dollars or 3.3 percent to 175.10. Henderson Land rallied 3 dollars or 4 percent to 79.25. Hang Lung Properties advanced 1 dollar or 3 percent to 35.20. Sino Land gained 80 cents or 2.7 percent at 29.15 dollars.

Cathay Pacific Airways rose 25 cents or 1.3 percent to 20.25 dollars. Hong Kong's biggest airline said yesterday it is prepared to team up with Air China and CNAC to make a bid for China Eastern if the offer by Singapore Airlines (SIA) and Temasek Holdings is rejected by the mainland's third-biggest airline in today's stockholders' meeting.

Cathay and Air China own at least 17.5 percent of each other.

Air China gained 22 cents or 2.1 percent at 10.74 dollars.

Shares of China Eastern have been suspended.

"The market expects that the (SIA-Temasek) deal will not be approved by the stockholders of China Eastern," said Tony Tong, deputy head of research at China Everbright Securities. "A lot of shareholders are against it. They find the price too low."

Banks were also up on hopes of bigger profits for 2007 after China Merchants Bank, the mainland's sixth-biggest bank, said Monday that preliminary figures indicate that its 2007 net profit under Chinese accounting standards grew by around 110 percent.

The bank posted a net profit of 7.11 billion yuan in 2006.

China Merchants jumped 1.90 dollars or 6 percent to 32 dollars.

China's biggest bank, Industrial and Commercial Bank of China, rose 8 cents or 2 percent to 5.34 dollars. The number two lender, Bank of China, gained 4 cents or 1 percent at 3.69 dollars. China Construction Bank was up 14 cents or 2.3 percent at 6.14 dollars.

HSBC rose 1.60 dollars or 1.23 percent to 129.30. Unit Hang Seng Bank climbed 3.20 dollars or 2 percent to 158.90.

China Coal Energy, the mainland's second-biggest coal producer, surged 1.20 dollars or 5 percent to 25.95. The company plans to sell up to 1.52 billion shares to list on the Shanghai stock exchange. The mainland regulators will hold a hearing on the initial share sale on January 11, according to IFR Asia.

Blue chips China Mobile, China Life Insurance and Hong Kong Exchanges and Clearing Ltd (HKEx) were also higher, reflecting the main index performance.

Asia's biggest mobile phone operator, China Mobile, rose 1.90 dollars or 1.4 percent to 136.20.

China Life, the mainland's biggest insurer, advanced 35 cents or 1 percent to 38.95 dollars.

Stock market operator HKEx climbed 1.60 dollars or 1 percent to 213.00.

(1 US dollar = 7.80 Hong Kong dollars, 7.30 yuan)