Sino-Centric: Hong Kong-listed firms with a PRC focus, like fast-growing Out-of-Home ad firm Focus Media Network (above), are likely to weather the global downturn better than others.
Photo: Aries Consulting

DEBT DEBACLES in the EU, rioting in London, currency volatility in Tokyo, the S&P downgrade of the US from its triple-A rating for the first time in history and extreme market volatility with shares in New York falling another 4.62% on Wednesday.

It's enough to make mattresses look like better bets than capital markets these days.

But there are bargains with growth potential to be found in this gloomy climate.

Shares in Hong Kong finally shook off string of six straight losing days yesterday (Wed), closing up 2.34% at 19,783.67.

The previous six sessions had seen the benchmark Hang Seng Index shed a stunning 14.7%, tracking major selloffs in New York and Europe.

Shares had plummeted a whopping 7.88% in early Tuesday trade, tracking selloffs in the US on the credit downgrade.

But in rushed the bargain hunters, helping lift Hong Kong shares throughout the day and resulting in a less hair-raising 5.6% downside close at 4 pm local time.

On the surface, the nearly 6% collapse looks bone-chilling.

Hong Kong's benchmark Hang Seng Index plummeted 7.88% in early Tuesday trade, tracking selloffs in the US on the credit downgrade. Photo: HKTA

But when one considers the over two percentage point improvement on the morning mayhem, that means quite a few fire-sale seekers made off with millions by the end of the day.

In a Chinese language piece, Sinafinance cited Hong Kong's Financial Secretary John Tsang as saying: "Although the US debt ceiling has been raised, we still don't know if or when politicians in Washington will reach a long-term resolution on bringing the budget deficit and debt burden under control, and the world is holding its breath as both sides of Congress and the president seem to be at each others' throats on a daily basis."

He said the stalemate in the US reminded him of a similar scenario two decades earlier.

"There is the danger that the Washington of today could become the Tokyo of 1990, and political gridlock could get in the way of economic and financial reforms and lead to another 'lost decade'," Tsang said.

"What can the Hong Kong government and investor here do to shield themselves from the fallout from various financial 'hotspots' around the world? I am sure that our government is closely monitoring the situation in Washington and deciphering what downsides and new hazards the S&P downgrade will have on global markets.

"And most importantly, how can investors find hidden treasures beneath these very imposing storm waves. I am confident that many such opportunities exist in the Hong Kong market."

More downgrades on horizon?

Analysts are predicting that at the end of this year, the US national debt could come frighteningly close to, or even exceed, the Gross Domestic Product (GDP) for the year, while the budget deficit could surpass the psychologically significant 10% warning level.

Hong Kong shares lost 14.7% in six straight losing sessions

"Although most people who have been paying even scant attention to markets and politics this past year fully expected someone to reduce the US credit rating and the fact that S&P was the first to break the ice, it is not out of the realm of possibility that other ratings agencies, even including to two other 'Big Three' might follow suit.

"Therefore, more financial market instability should not only be expected, but more importantly – prepared for it."

Mr. Tsang said that if the US credit rating takes another hit, "it could induce a snowball effect with everyone jumping on board – or jumping ship – depending on how you see things."

New York's troubles could be Hong Kong's gain.
NextInsight file photo

He said the political impasse in Washington and the shock of losing the triple-A credit rating come at a time when unemployment in the US is still at intolerably high levels and the economic recovery seems to be losing traction.

"This could induce a further slowdown or potentially even a double dip. It is not good news at all for the broader global economic bounceback."

He also said Hong Kong itself could benefit from the woes abroad.

"The US losing its triple-A rating could further solidify Hong Kong's role as a regional financial center of choice, not as one of default."

But not everyone was worries about keeping their powder dry after the US ratings downgrade and amid the recent flurry of setbacks for the global economic system and its long hoped-for recovery.

Sinafinance cited a market watcher with HSBC Securities as saying: "I believe it is more important to closely monitor the individual national debt crises in the EU rather than fixating on the decision of a single ratings agency to cut the US to AA+. This is because Italy is a major economic entity within the EU and if it goes the way of Greece, all bets are off.

"So I would encourage investors to keep their eyes on all the major markets."

The analyst downplayed the potential impact the ratings downgrade in the US might have on Hong Kong markets.

"Actually, I don't see a huge impact here from the S&P decision. Ultimately, it will result in heftier financial and fiscal burdens for US firms, but not for Hong Kong enterprises."

See also: HK TYCOON LI KA-SHING: Killer 1H, Eyeing Mainland Invasion

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