HKHSI and NASDAQ Downturn (5/5/2000)

Major Correction in the Horizon (4/15/2000)

Prof. Kai Keung Mark is a retired professor, Dept. of Biology, The Chinese University of Hong Kong and Dept. Head and Principal Lecturer, Dept. of Science, Hong Kong Institute of Education. He has three biotechnology patents. He uses his understanding of high technology to forecast market movements . He has published 13 articles in Financial Trend, and leading Hong Kong stock analysis journal plus many other Mark's letters since 1987. His prediction reliability rate reached 80%. He accurately predicted the October crash (10/18/87), the bottom level of 1990(3/5/90), the peak level of 1994 (5/11/92), the peak level of 1997 (2/12/96), the peak level of 2,000 (8/22/99), the peak in March 2000 (2/20/2000), and the bottom in September, 2001.

Hints from HSBC's takeover of HII

HSBC's bid for a US$14.2 billion (HK$110.7 billion) take over of the US mortgage giant, Household International Inc. (HII) by issuing 124.83 million new shares, about 13% of HSBC's existing shares. It is HSBC's biggest take over attempt so far. HII handle mortgage that are rated as low grade. Therefore its stock price goes down steadily in recent months. The HSBC offer price is 35% up from the HII closing price, but is still quite low if compared with one year ago. HSBC dropped 5.9% in London immediately after the announcement. If the US economy went down further such as a double dip, HSBC would feel the pressure.

The author wants to analyze the above facts, and tries to obtain some hints from this decision. We all know that HSBC demonstrated a cautious and careful action resulting a steady and good yield in the past decade. The HSBC management must have seen an excellent and confident opportunity before they will take over such a mortgage company with low grade loans. HSBC is not a speculative fund, so such action must have solid evidence or analysis behind it. In such a big company (HSBC), there must be top rate financial team to do the job, so they must have seen something that the market has not reflected yet. Most likely, it must have strong evidence at hand that the US economy is turning around, and rosy days or bull market is ahead.

The author's reading of HSBC's take over of HII is a very positive sign that the bull is around the corner, and this is consistent with the standard economic rule that low interest rate promote economic recovery. On top of this, US president Bush is likely to push for tax reduction to further boost the economy because he wants a booming economy two years from now when he run for the second term. Old president Bush had overlooked the importance of a booming economy, so he was not elected for second term, but his son definitely will not fall trap into this.

The SAR Government of Hong Kong just announced its realty market stabilization scheme which should have some impact because the estate market has already dropped 60%. What a costly lesson to take for meddling with market force. This should end up as a textbook example.