Mobius says momentum is back, stocks take breather

Themis Qi

Hong Kong stocks went on a roller-coaster ride yesterday before ending a six-day rally, with heavyweight Mark Mobius saying momentum has come back to the market.

The benchmark Hang Seng Index once dived about 1,000 points before rebounding by as much as 993 points.

The indicator closed 330 points or 1.47 percent lower at 22,113 points, after rallying about 4,200 points in six days fueled by Beijing's unprecedented stimulus package and investors' fear of missing out.

Morgan Stanley projects Chinese equities to extend their growth by 10 percent to15 percent if Beijing rolls out more easing measures in the coming weeks.

Standard Chartered (Hong Kong) said yesterday's retreat means the stock market has entered the correction phase but the appropriate adjustment is good.

The bank also raised its highest target for HSI by about 2.3 percent to 22,500 points for the second half of the year.

The Hang Seng China Enterprises Index and the tech gauge also fell by 1.6 percent and 3.5 percent respectively.

Yesterday, mainland developers lost some of their gains, with Shimao (0813) dropping over 26 percent after a surge of as much as 5.7 times from the stimulus announcement.

JP Morgan warns investors of high risks for buying shares of mainland developers after they have been pushed to overvalued levels amid the current stock frenzy.

Nomura's chief China economist Lu Ting also said a stock bubble is taking shape with aggressive young investors attracted.

Lu also pointed out that traders have different expectations of the follow-up policies to be rolled out by Beijing.

The "father of emerging markets" Mark Mobius wrote in his blog that China's stock market has "roared back to life."

But the market veteran sees the current stock frenzy as a short-term rebound.

With domestic demand and credit growth remaining sluggish in mainland China, he is "cautiously optimistic" and calls for more reform to build a sustained bull market.

Oil prices once rose nearly 0.5 percent yesterday due to the escalating conflict in the Middle East.

Electric vehicle makers including BYD (1211) dipped after four European countries were reported to vote in favor of tariffs of as high as 45 percent on vehicles imported from China.