Asia Times: Hong Kong gold rush



	February 26, 2000	atimes.com

Editorials

Hong Kong gold rush

It's an old piece of financial markets wisdom that whatever New York does, overnight Hong Kong follows with a vengeance the next morning. One reason, of course, is the Hong Kong-US dollar peg. When the US raises interest rates, Hong Kong has little choice but to follow suit; and when US markets tank as the result of higher rates, so does the Hong Kong market - usually by double New York's percentage loss. Conversely, lower US rates or other causes for cheer and market gains bring about a Hong Kong buying frenzy.

On Wall Street the flavor not just of the month but of the year has been Internet stocks with valuations few investors or analysts now even try to justify. Until a few months back, Hong Kong had found it difficult to replicate US Internet mania. There simply weren't enough Internet stocks on the market and few IPOs to jump on. But that's all changing now and Tom.com mania shows the city's determination to catch up with and outdo New York - and in spades.

The scenes last Wednesday in front of 10 HSBC branches designated to accept application forms for the IPO of China Internet play Tom.com were nothing short of amazing. At one branch alone (in Mong Kok), the police estimated that 40,000 to 50,000 people had lined up to submit their share application forms. Elsewhere the numbers weren't much smaller, roads had to be sealed off, shops had to close, fights broke out in the queues, and police had to intervene more than once to restore some semblance of order.

What is Tom.com? Tacky name aside, not much. It's a half-built Chinese-language website cobbled together over the past few months to serve as a China portal and e-commerce platform majority-owned - and that's the catch - by tycoon Li Kashing's blue chip companies Cheung Kong (Holdings) and Hutchison Whampoa. It seeks a listing on Hong Kong's new Growth Enterprise Market (GEM) and to that effect put up 428 million shares for sale to the public, most reserved for institutional investors, but 10 percent open to individual investors who jumped on the issue as though it were pure gold. And who knows, perhaps for some it will turn out to be just that as shares priced at HK$1.78 are already trading in the grey market at over HK$10.

But such a quick money grab for some has every opportunity of turning into a huge liability for Hong Kong and its stock market's new secondary board. The city, hit hard by the Asian crisis and just beginning the process of recovery, must reinvent itself and its economic purpose if it is to survive as a major regional trade and financial center. Gone are the days when it could prosper as the seat of holding companies with low labor cost manufacturing units in the mainland, the financial intermediary for regional investment activities, and big money made on speculation in overpriced real estate. Mainland manufacturers increasingly handle their own external trade relations and finances, maturing regional economies are relying less on investments channeled through Hong Kong, and the property bubble has burst and is not soon going to reinflate. Hong Kong's great opportunity is to become the e-commerce hub for China and the region to augment and build on its trade and financial hub functions. But if in the process of that development the GEM becomes a gambling casino with money in and out before you can bat an eyelash, then forget it. Venture capital will find other avenues to tap the large and growing China e-commerce and high-tech media market potential.

Our regular readers know full well that in these pages we have been strongly supportive of the new Internet economy and closely examined and extolled its virtues and potential. But while we are fully aware of the fact that exciting founder periods in economic history of necessity have their wild and wooly side, it's shortsighted and irresponsible for companies like Cheung Kong or Hutchison Whampoa to run the type of advertising campaign they ran for Tom.com's IPO and deliberately stir up the kind of frenzy we've just seen, trading on their good name and business record. Most investors who went for the gimmick will come away disappointed. Never mind; that's their own business and folly. But the collateral damage done to Hong Kong's reputation will be serious and not easily lived down. It took the city a good long time after the early and mid-1980s stock market turmoil and crashes to put in a reliable regulatory regime that gave investors confidence and allowed the market to perform its essential function as a resource for business capital. Regulators in this case reacted way too slow and late; after all, who would question the bona fides of Li Kashing and Hong Kong Bank. They may come to regret their laid back attitude.