"Big guns will be back to blast us, warns Lau
Alfred Liu and Benjamin Scent
Wednesday, November 12, 2008
Investment guru Joseph Lau Luen-hung, chairman of Chinese Estates (0127), comments on the Hong Kong stock market and property market for the first time in an interview with East Week magazine, a sister publication of The Standard.
In a wide-ranging interview, Lau reveals his thoughts on how hedge funds and other big foreign guns in the market took advantage of the chaos from the financial tsunami.
EW: Did big foreign institutions notice that many people had bought high-risk derivative products and use that as an entry point to launch speculative attacks on the Hong Kong market when it was at its most vulnerable?
Lau: The market fell 1,600 points in one day [October 27], and then recovered some 1,500 points the next day. I think some hedge funds or securities firms were short-selling futures to push blue-chip stocks lower. What they did was perfectly legal.
But people were angry. Europe and the United States banned short selling. The Hong Kong government should have also banned short selling when the Hang Seng Index fell to 13,000.
EW: Are foreign investment houses making big money this time through short-selling?
Lau: Many of the big guns set up a fishing net when the market was still at 18,000, and then they just sat and waited to reap the harvest. When the HSI slumped to 11,000, suddenly, there were a lot of rumors that it would hit 8,000. For sure, they were manipulating the market to spread fear.
EW: Did the index rebound on October 27 because the big guns pulled out of the market?
Lau: I think those big players were afraid that the government would suddenly ban short-selling. So they cleared their positions very quickly. After the Hong Kong market fell 1,600 points, the Dow dropped 2 percent.
So, the local market should have continued falling the next day. Instead, it actually rose 1,500 points. It's obvious - this is robbery. They have hoodwinked Hong Kong investors.
The day HSBC's share price dropped to HK$75, confidence of many loyal shareholders snapped and they dumped the stock. If a market allows short selling, some people will always think up tricky ways of earning money. When the markets are so turbulent, the government should do something to tackle the problem, instead of just letting some outsiders come in and rob people.
EW: Do you think the big guns are planning another attack on Hong Kong?
Lau: Yes, they will inevitably attack again, because it's easier to forecast a drop than a rise when confidence is getting worse.
EW: What should investors do in this volatile market?
Lau: Be very cautious. The volatility will last three to six months. But I believe Hong Kong is backed by China, and Beijing will take care of our 7 million people. They have the ability to protect us.
EW: Can you share more of your personal experience for retail investors?
Lau: As a retail shareholder, first, you have to be able to adjust to changing circumstances. Never be stubborn. Second, don't fall in love with stocks - you must not get married to them. Third, you may aim to maximize returns on your stock investments, but don't hesitate to cut your losses when something goes wrong.
EW: Derivative products such as accumulators have caused huge losses. Why are they so destructive?
Lau: There are both advantages and disadvantages to investing in derivatives. Accumulators can actually help investors hedge. For example, you can buy HK$50 million in accumulators linked to a particular stock and also buy HK$100 million worth of the shares directly.
If there is a shortfall on your accumulator investment, you can use the shares you have on hand to cover the losses. The reason why some investors lost so much was they didn't have the stock on hand - and secondly, because of greed.
EW: Many tycoons in the city invested in accumulators even though they didn't fully understand what they were buying into. What happened?
Lau: Many of them put down big bets during the bull market, which is why they lost so much after the market turned sour. Accumulators are not to blame.
Its mainly to do with strategy and how you deal with risk.
EW: Is there a possibility the Hang Seng Index will test a low of 10,600 in the coming three to six months?
Lau: A foreign-owned securities firm told me that the index will not drop below 11,000 points this year. But next year it is possible to touch this low. I personally think the 4 trillion yuan (HK$4.55 trillion) stimulus plan by the central government will be able to boost the economy; so as long as the Hong Kong government can handle the short selling problem well, the market will not be too bad."
source: the standardard
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