Identifier
Created
Classification
Origin
09HONGKONG801
2009-04-30 11:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Hong Kong
Cable title:  

Hang Seng Recovers from Flu but Trade Volumes Still In ICU

Tags:  ECON PGOV EINV PREL HK MG 
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VZCZCXRO3181
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #0801 1201157
ZNR UUUUU ZZH
R 301157Z APR 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 7525
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS HONG KONG 000801 

SIPDIS, SENSITIVE

STATE FOR EAP/CM, TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ECON PGOV EINV PREL HK MG
SUBJECT: Hang Seng Recovers from Flu but Trade Volumes Still In ICU

UNCLAS HONG KONG 000801

SIPDIS, SENSITIVE

STATE FOR EAP/CM, TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ECON PGOV EINV PREL HK MG
SUBJECT: Hang Seng Recovers from Flu but Trade Volumes Still In ICU


1. SUMMARY: Flu fears pushed down the Hang Seng early in the week,
but the Index had fully recovered by April 30. The Hong Kong
Monetary Authority will include flu-inspired scenarios in its next
round of bank stress testing. Hong Kong's ExCo approved plans to
issue up to HKD 100 billion in government debt over the next five to
ten years, but there is still no clear indication of how the money
will be used. Pending Legco approval, the government bonds could be
issued before the end of 2009. Hong Kong trade fell more than 20
percent again in March. The Hong Kong Airport Authority will offer
a 10 percent discount on landing and parking fees to help airlines
weather the storm. End summary.

Hang Seng Index Rebounds After Flu-inspired Sell-off


2. The announcement April 26 that a new and deadly flu was quickly
spreading from Mexico to the U.S., Canada and other regions reminded
many investors of Hong Kong's calamitous experience with SARS in

2003. Local investors dumped their shares and pushed the Hang Seng
Index down by 4.6 percent or 703.74 points on April 27 and 28. The
Hong Kong Government's quick response to the potential threat
appears to have comforted the public and market sentiment improved
on April 29 and 30, with the Hang Seng Index gaining 2.76 percent
and 3.8 percent respectively, fully recovering its losses from the
previous two days. On April 30, the Hang Seng Index closed at
15,520.99, up 1.7 percent or 262.14 points from Friday, April 24.
Daily trading volume increased to HKD 71 billion, up HKD 19 billion
from the previous Friday. The Hong Kong Stock Exchange will be
closed May 1.


3. On April 30, Hong Kong Monetary Authority (HKMA) Chief Executive
Joseph Yam told the press that the HKMA will conduct stress testing
for local banks, including assessing the impact of swine flu on the
banking system. The news didn't seem to impact banking stocks, with
both Hong Kong and mainland Chinese banks rebounding strongly.
Local giants HSBC, ICBC, China Construction Bank and Bank of China
all gained 2.5 to 3.5 percent. HIBOR quoted by the Hang Seng Bank
were 0.05 percent for overnight and one-week, 0.16 percent for
one-month, 0.76 percent for three-month and 1.06 percent for
six-month loans.

Bonds... Hong Kong Government Bonds


4. On April 28 the Hong Kong Executive Council approved the issue
HKD 100 billion worth of Hong Kong Government bonds over the next
five to ten years aimed at both retail and institutional investors.
With the approval of Legco, the government is expected to issue HKD
10 to 20 billion (USD 1.3 to 2.6 billion) in the first tranche of
bonds before the end of the year. Secretary for Financial Services
and the Treasury K.C. Chan told the press that the revenues would be
credited to a new "Bond Fund" managed by the Hong Kong Monetary
Authority.


5. Secretary Chan noted that the primary objective of the
government bonds is "to increase the breath, depth and liquidity of
the local bond market, so that it can complement the banking and
equity markets as an effective channel of financial intermediation".
According to Chan, the initial tranche will include maturities of 2
to 10 years, but he did not comment on yields. Market observers
predicted the Hong Kong government would list the new bond issue on
the Hong Kong Stock Exchange. With over US$50 billion in fiscal
reserves, there is no current budgetary need for the government to
borrow money. HKMA officials also do not know precisely how the
money will be handled but expect it will be managed as a part of the
HKMA Investment Fund.


6. This will not be the first time the Hong Kong Government has
issued sovereign debt. Shortly after returning to Chinese control
in 1997, Hong Kong issued HKD 24 billion (USD 3.2 billion) to fund
capital works projects. Two additional government bond offerings in
2004 were met with strong demand and over-subscribed.

Hong Kong's March Trade Still Down


7. Hong Kong's total exports of goods in March fell 21.2 percent
from a year ago, with exports to the U.S. down 23.3 percent. Total
imports also dropped by 22.7 percent. Falling cargo and passenger
volumes have led the Hong Kong Airport Authority to take measures to
alleviate the burdens of the airlines. Airlines operating at the
Hong Kong International Airport are being offered a 10 percent
reduction in both landing and parking charges till the end of 2009,
amounting to the revenue reduction of about HKD 200 million to the
Airport Authority.

Marut