For some, it's 'trade in May and hope HK stays in play'

By R SIVANITHY SENIOR CORRESPONDENT

MANY blue chips have had a great run over the past four or five weeks. But now that the reporting season has started and the figures streaming in aren't that great, maybe it's time to cash out for a while?

For some traders, this means 'sell in May and go away'. And to be honest, that's not too bad an idea given the downgrades now being issued, especially for local banks.

For other traders, however, it's more a case of 'trade in May and hope Hong Kong stays in play'. Members of this camp are pinning their hopes on the former British colony holding up in the face of sudden weakness. But unfortunately for them, Hong Kong didn't hold up this week, registering more weakness than strength over the five days.

Yesterday, for example, a 1.5 per cent slide in the Hang Seng Index weighed the Straits Times Index down for the entire day, the latter eventually ending 9.85 points lower at 3,162.03. For the week, the STI lost 74 points or 2.3 per cent.

Yesterday's session was also marred by a computer glitch that started in the late morning and lasted until mid-afternoon. The exchange said the problem was due to 'connectivity issues at the primary telecommunications provider'.

The three banks were among the more prominent local corporations to report their first-quarter results this week. Although loans grew and profits were made, the figures were not overly sparkling and the outlook not overly optimistic to justify continued buying. The majority of analyst reports have been of the diplomatic 'hold' variety, based on fair values having been reached and the absence of catalysts for any major upswing.

In its bank round-up, Citi Investment Research said the outlook for the second half has turned cautious. Among the reasons are increasing macro-economic headwinds from the global slowdown, and although loan growth looks healthy, caution over property-related exposure is warranted. Citi also said it is debatable whether deferred-payment- scheme property launches can boost mortgage growth later this year. It recommended switching out of UOB to laggard DBS and maintained a 'hold' on OCBC.

BNP Paribas, meanwhile, said it sees little scope for upside and recommended investors sell the banks into strength.

The property sector has also had a good run over the past month, but looks like running into headwinds of its own.

Credit Suisse on Monday issued an 'underweight' on property, saying the sector could see the bursting of a bubble created by 'exuberant expectations and liquidity over the past two years'.
It went further to say physical property price falls of up to 40 per cent are possible because of a withdrawal of liquidity, dumping by marginal speculators, price cuts by small developers and rising vacancies because of rising supply.

In the stock market, second- line activity was focused on a mix of the old and the new - tried and trusted trading chip Jade Technologies registered a large volume after news that it had appointed a former minister as an independent director, while China abalone firm Oceanus debuted at an offer price of 20 cents and finished the week at 25 cents.

Hong Kong provided the main external thrust - as well as drag - throughout the week, with the gyrations of its Hang Seng mirrored perfectly by the STI. Oddly enough, Wall Street's influence was relatively muted, though yesterday a sharp drop in the US futures market probably played a part in Hong Kong's slide and a soft opening in Europe.