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Invisible hand eases Kwok arrest
shock
By Chris
Stewart
Hong
Kong's benchmark Hang Seng Index (HSI) ended down
0.26% on Friday, the markets closing out the week
with what had the looks of a virtuoso display of
market manipulation - in effect, a successful
bloodless coup against the world's biggest market
for new stock listings.
A clear-out of
Hong Kong Stock Exchange (HKEx) oversight panel
members quickly followed. As new members,
including minority shareholder activist David
Webb, got down to hard graft over the weekend, the
mainland government closed 16 websites, and banned
Internet users from commenting on posts to
Twitter-like sites run by Sina Corp (300 million
users) and Tencent Holdings, the country's two
largest providers of the services. Six people were
arrested for spreading rumors of a coup attempt in
Beijing.
The HSI opened on Friday 229
points down on out-of-market trading, spooked by
the arrest late-afternoon Thursday of the Kwok
brothers, Thomas, 59, and Raymond, 58, co-chairmen
of the world's second-biggest property developer,
Sun Hung Kai Properties (SHKP).
The wonder
was the overnight decline was so small. Hong
Kong's Independent Commission Against Corruption
(ICAC) officers collared Rafael Hui, a former
number 2 in the Hong Kong government, along with
the multi-billionaire Kwoks. Five lesser players
were also grabbed.
The implications of the
arrest ran deep. Property development and
associated revenue is a pillar of the Hong Kong
economy. Its relations with government have always
been intimate.Yet, against the odds, the 48-member
blue-chip stock index trended steeply up from the
open - hesitating only for lunch before a last
nudge dropped it just 53.81 points off Thursday's
close.
The concluding pattern of the day's
trade, color-coded and numbered so there could be
no mistake, told the story - and prophesied change
in Hong Kong and Greater China. The stock
exchange, the world's biggest, above New York and
London, for raising listing money, was the first
to feel the impact.
On Friday night,
anti-corruption stock specialist Webb was named
with others as new regulators to end supposed lax
handling of listing rules and the like, only five
trading days after the city's fudged and bitter
election for its chief executive had put Beijing's
late choice, Leung "the Wolf" Chun-ying, in
office. [1]
Leung's first challenge is
to "assure the market" that Hong Kong's regulation
of listed companies will not tighten unduly. He
made appropriate conciliatory noises; a Citibank
analyst among others chorused their confidence.
Leung will not take over officially until
July 1, yet an urgent issue concerns who is
running the ICAC. On March 28, three days after
the election and one before the Kwoks' arrest, the
anti-corruption body announced that its
long-serving deputy commissioner and head of
operations, Daniel Li Ming-chak, would postpone
until July 31 his planned April 17 retirement,
already overdue since December. [2] The extension
"accords with the Commission's operational need
and the arrangement is agreeable to Mr Li", the
announcement said.
(Daniel's superior,
ICAC commissioner Timothy Tong Hin-ming, had
earlier recused himself from an investigation of
outgoing chief executive Donald Tsang, following
recent claims Tsang had received extravagant
peccadilloes from businessmen. Tong, who came from
elsewhere in the government to run the ICAC in
July 2007, backed off the probe as he had spent
time "playing golf" with some of the parties
involved.)
Arresting the Kwoks was
Daniel's first big job as boss. It was showdown
time, as Leung stamped his authority on the city
and put in place the business elite who had backed
his opponent, Henry Tang, and had besmirched his
name during the campaign - not that this was
personal. [3]
The beauty of the market coup that followed
lies in the details. (There is no suggestion Leung
had a hand in this. He was the hour hand on the
clock, not the mechanism driving it.) But there
had been warning that danger was lurking.
On March 19, the ICAC had hauled in SHKP
executive director Thomas Chan Kui-Yuen, who had
been in charge of land acquisitions at the
company. The same day, State Councilor Liu
Yandong, down from Beijing hours before "coup"
rumors swept China's capital, was across the
border in Shenzhen getting the urgent message
across to electoral college members and other
top-end people who would choose Hong Kong's chief
executive - ditch Tang, who had looked
increasingly ridiculous amid breaking scandals
mentioning marital infidelity and illegal
construction. Tang had thrown mud back, but not
enough. [4]
Come Friday, market reaction
to the Kwok arrests was immense; the number of
shares traded surged as competing forces battled
for control of prices. The manipulator's key was
not to let it show in the price.
The
volume of shares traded jumped to the 250 million
mark, more than two-and-a-half times normal volume
over the past five months (a rare exception was on
March 16, the Friday before "coup" rumors swept
Beijing on March 19). [5]
SHKP alone lost
just short of US$5 billion in value on Friday, the
most in 14 years, as it was gently discarded and
left to rot; yields on US$500 million of its
bonds, sold on February 6, jumped to 5.07% in the
first hour of trading - but that did not matter;
it was part of the plan. There were bigger fish to
think about. [6]
Little had changed when
it was over: on the surface, only SHKP had been
badly wounded. Hang Seng Index members,
representatives of their industries, had moved
only a percentage point or two. Yet when the dust
settled, the displayed ordering of winners and
losers across the benchmark HSI, in its range of
sub-indexes, betrayed the manipulator's intent -
"I am in control now."
(Hang Lung
Properties, owned by Ronnie Chan, a spirited
public supporter of Leung, was the second-best
gainer on the Properties Sub-Index, the tick up of
0.53% showing how little price changes were on
such a panicky day. [7]
Go green, young
man
Among the 48 members of the benchmark
Hang Seng Index of leading stocks, 23 fell, 22
gained. Three survived the day unchanged, with
only slight variations throughout a tumultuous
day.
The top 10 gainers (numbered by
biggest percentage price gain- taken out of
order):
1. Tingyi Cayman Islands Holding
(3.7%): a Taiwanese noodle maker.
2. Hengan
International Group (2.95%): China's largest
diaper and sanitary napkin maker.
4. Want
Want Holdings (2.12%): a Taiwan-based dried
cracker maker.
Buffeted by huge market
forces, a noodle maker came out top; a diaper
maker second, a dried cracker manufacturer fourth.
Weightier stocks are harder to move - yet Tingyi
is also the largest Taiwanese company in China.
Are we to read that more people are expected to
eat noodles, or more people will afford little
else. Cross-strait relations are improving - but
Apple iPad suppler Foxconn International, another
Taiwanese giant, albeit a third the market value
of Tingyi, slid 0.72% on Friday.
These
were not the only curiosities:
9. AIA
Group (1.25%). Surprising - Rafael Hui on
Friday resigned as an executive director before
(or just after) being arrested along with the
SHKP's Kwoks. SHKP, whose future now looks far
from secure, runs its own property-linked
insurance business, which it will not keep to
itself. That shadow did not fall on the AIA Group.
The rest of the gainers were big-hitting
mainland companies - China Resources Power
Holdings (3rd best, up 2.28%), PetroChina (4th,
2.23%), state-owned Bank of China Ltd (6th,
1.62%), state-owned Industrial & Commercial
Bank (7th,1.62%), (the world's biggest by market
cap and most profitable); state-owned China
Mobile, the country's biggest mobile operator,
using its own communications software, (8th,
1.54%); and Hong Kong's own transport and
development behemoth, MTR Corp (10th, 1.09%).
SHKP anchored the 10 worst-performing Hang
Seng Index members, down 13%, followed by:
2.
Property developer Sino Land
(-3.58%).
3. Property developer Cheung Kong
Holdings (-3%): owned by Hong Kong's
perennially richest man, Li Ka-shing.
4.
Property developer Wharf Holdings (-2.88%):
Wharf's Cable TV appears to have got the tip-off
on the series of ICAC arrests. [8]
7. Property
developer Henderson Land Development
(-2.5%): chairman Lee Shau-kee is a director
on SHKP's board among other close ties. New
regulator Webb argued strongly in public against
Henderson's plan to buy-out minority shareholders
in 2002. Linked to a planning scandal in 2001.
8. Property developer New World Development
(-2.41%): Its 2008 hiring of a former
government official raised a public stink, as did
the subsequent no-action report. Beijing stepped
in and the hiring plan was dropped.
9. Property
developer Swire Pacific (-1.97%).
10.
Hutchison Whampoa (-1.83%): a conglomerate
that includes property interests and also ports
around the world, including one either end of the
Panama Canal. Owned by Li Ka-shing.
And
the curiosities:
6. Cathay Pacific
Airways (-2.57%): a sometime business partner
with China's state-owned COSCO.
5. Li &
Fung (-2.84%): the world's leader in supplying
WalMart and the like with mostly Chinese-made
clothes and toys. On March 22, it reported a 24%
gain in full-year profit to US$681 million, raised
its tax-free dividend 18%, and named Asia an
important growth platform.
On March 28, it
joined a record-setting race by Hong Kong
companies to raise funds. [9] Li & Fung sought
to offload US$502 million worth of shares at 5%
off on March 28. The company's cash holdings more
than halved last year to US$426 million. Hong Kong
companies have raised US$9.6 billion in secondary
share sales in Hong Kong in the past three months,
a record first-quarter amount, Bloomberg reported
on March 22.
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