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HSBC official warns of bubble burst

"If there are any policies that will curb the growth of China, it will directly affect these companies and that will directly affect the stock performance in Hong Kong."

-- Peter Wong, HSBC executive director

An official at global banking giant HSBC Holdings Plc yesterday warned of "serious" impact on the Hong Kong stock market if the Chinese market bubble burst, a day after a Hong Kong tycoon made similar remarks.

"I think there's a genuine concern," HSBC executive director Peter Wong (王冬勝) said, adding about 40 percent of the local bourse is made up of Chinese stocks.

"If there are any policies that will curb the growth of China, it will directly affect these companies and that will directly affect the stock performance in Hong Kong," he told local radio RTHK.

Wong said recent concerns that the mainland market is overheating were justified and warned the impact would be "quite serious" on the Hong Kong stock market if the Chinese bourse crashes.

He also urged local investors to be extra cautious when making investments.

Wong's comment comes one day after Hong Kong tycoon Li Ka-shing (李嘉誠) warned about the risks of trading China stocks, saying he was "worried" over the high share prices following their record breaking run.

"As a Chinese, I am worried about the stock market; with P/E being 50/60 times, there is indeed a bubble phenomenon," Li said.

"Of course I do not hope to see a situation when the bubble bursts. It is better for investors to be more careful," he said, adding any fluctuation in Mainland economy would affect Hong Kong.

Last week, the Shanghai Composite Index breached the historic 4,000 points level for the first time, putting stocks there on Price/Earnings Ratios -- a standard measure of valuation -- at about 50 times compared with the Asian average of 14-18, according to analyst estimates.

As the Chinese markets have gone from one record to the next, in massive volumes sometimes second only to Wall Street, officials have repeatedly warned of the dangers of a bubble bursting which would hit small investors hardest.

The extent of China's stock market fever was outlined in a recent central bank survey which showed 30.7 percent of the public planned to tap their low-interest savings accounts to buy into equities.

It is this frantic investment that has experts calling for Beijing to take action or eventually face serious economic consequences.

Li's remarks sparked a sell-off across the board on the Hong Kong market yesterday, with the benchmark Hang Seng Index down 1.02 percent at 20,780.63 by the close of yesterday's morning session.

Dealers said market sentiment has also been weighed down by talk that Chinese authorities might raise interest rates by at least 27 basis points as early as this weekend.

In Shanghai, Chinese share prices closed easier yesterday, slipping back in see-saw trade after the latest central bank warning about the dangers of an overheating economy and market, dealers said.

The benchmark Shanghai Composite Index, which covers both A-and B-shares listed on the Shanghai Stock Exchange, lost 18.04 points or 0.45 percent at 4,030.26 on turnover of 173.64 billion yuan (US$22.55 billion).

The main index rose 0.21 percent for the week, posting its ninth consecutive weekly gain, most of them record breaking performances.

The Shanghai A-share Index was down 19.50 points or 0.46 percent to 4,218.92 on turnover of 166.30 billion yuan but the Shenzhen A-share Index rose 6.48 points or 0.54 percent to 1,206.52 on turnover of 86.17 billion yuan.
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