Doubtful fundamentals have never prevented Hong Kong investors from buying into a good story, and the technology revolution has once more given local retail investors a dream to believe in.
Retail investors have been in a rare state of hibernation since being badly burned midway through 1997, following the onset of the Asian economic crisis. Indeed, retail investors were behind the meteoric rise of China-related stocks in the run up to Hong Kong’s historic handover on July 1, 1997, piling millions of dollars into so-called red chips.
Red chip fever cooled when the prime motivator – expectations of asset injections from mainland parent companies at bargain prices – failed to materialize. The onset of the Asian crisis, just one day after the handover, merely quickened the pace of the meltdown in prices. Since then, record high unemployment and the threat of pay cuts have continued to hold retail participation at bay.
Cyber boost
But a string of recent developments has brought retail investors back to the market on hopes of a technology boom in Hong Kong. A new Cyberport, to be built on a prime piece of real estate on Hong Kong Island, and the launch of the Growth Enterprise Market (GEM), in the fourth quarter, have rekindled interest and set a new dynamic in motion. Companies that traditionally sourced profits from more conventional means are suddenly jumping on the technology bandwagon and breathing new life into their illiquid, or simply languishing, shares.
Take Wharf Holdings, for example. This conglomerate, primarily a property developer, moved into telecoms in the early 1990s and currently operates a loss-making fixed-line phone network and cable TV operation. But the group’s plans to develop an i-cable broadband internet access business have turned last year’s poorest performing blue chip into 1999’s biggest gainer.
Another blue chip property developer which turned to telecommunications almost a decade ago, New World Development, has given birth to a subsidiary – New World CyberBase – to expand into internet and IT businesses. In addition, a host of small, virtually inactive stocks have risen to new heights in recent months, by announcing moves into IT and changing their names to signify a promising new future.
Retail race
Howard Gorges, vice-president of South China Brokerage, has seen a return of retail investors in the past few months and cautions against indiscriminate investment in companies that simply ‘add dot com’ onto the end of their name.
‘Investors should look at the rationale of these companies. It’s difficult to forecast which ones will be the big successes. No doubt the use of IT will help some companies more than it will others,’ Gorges says, adding that there had been some hype on a number of stocks.
The biggest hype has circulated around Tricom Holdings, a highly illiquid third-line stock involved in property investment and telephone manufacturing. In May, Tricom became the target of a takeover bid by Richard Li Tzar-kai and his Pacific Century Group. Li, son of property tycoon Li Ka-shing, caused a storm when his company secured the Cyberport project on prime land without it being put to public tender.
Its critics, including his father’s long-standing peers, claim the Cyberport is a property development dressed up as a hi-tech start up business. Whatever the outcome, Tricom, to be renamed Pacific Century CyberWorks, saw its shares soar 1,200 per cent ahead of the initial takeover bid price tag. Further controversy has surrounded the project since a private detective working for Kroll Associates was revealed to be trying to source the root of criticism of the project on behalf of an anonymous client.
The GEM, a secondary market aimed at attracting start-ups with no profit record, may come as a disappointment to investors who feel they have missed out on the fortunes made on the Nasdaq. Regulators certainly intend to restrict participation of retail investors when the market is launched at some time in the fourth quarter, due to the highly risky nature of those it intends to attract.
