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Hong Kong Stocks at New Historic High — Zetland Financial Group Analyzes Why

Hong Kong Stocks at New Historic High — Zetland Financial Group Analyzes Why










Hong Kong (PRWEB) September 19, 2007

As Hong Kong stocks reach a new historic high, Zetland Financial Group Limited analyzes the reasons for this growth.

Following a very volatile last week in August, share prices on the Hong Kong stock exchange rebounded to a historic new high on 31 August when the Hang Seng Index briefly soared to 24,000 points during intra-day trade on that day. The turnover on that day was HK$ 113 billion (US$ 14.48 billion).

At the time of writing, the Hang Seng Index has since passed the 24,000 mark. The Hong Kong stock market has since experienced a re-rating for investors since the gloom of 2003 when SARS hit Hong Kong and unemployment went to new highs.

A number of factors have contributed to Hong Kong listed shares hitting new highs, and these may be attributed as follows:

1.    Global markets becoming more stable from the sub-prime problems as a result of central banks pumping liquidity into the banking sector.

2.    China’s high economic growth.

3.    China’s reform of its state owned enterprises by allowing the fittest companies to list on the Hong Kong stock exchange.

4.    China allowing private entrepreneurs to list their companies overseas.

5.    As Hong Kong investors are knowledgeable about Chinese companies, this influences the choice of listing here.

6.    Investors believing in the China economic growth story and the emergence of consumer spending power.

7.    Hong Kong is a free market, there is no capital gains tax for individual investors, no restrictions on movement of capital, and is a proxy for investing in China.

Another factor is the recent announcement by the Chinese Government that it will allow Chinese citizens to invest directly in Hong Kong shares. Under this measure, Chinese citizens who have opened an account with the Bank of China in Tianjin will be allowed to invest directly in Hong Kong shares. Chinese citizens will have the freedom to invest in some well known Chinese companies that are currently listed in Hong Kong but not yet listed in China such as China Mobile (the country’s largest mobile phone company), Petrochina (the leading Chinese oil company, in which Warren Buffett has an investment stake), etc. China’s citizens can also purchase shares in Chinese companies (H shares) which are relatively cheaper than the same A shares that are listed in Shanghai. The initial investment funds flow has been estimated to be between US$ 10 to US$ 50 billion as a result of this measure known as the “through train” programme.

If you or your clients are interested in opening share brokerages accounts to invest in HK shares, please speak contact intray(at)zetland.biz for details.

About Zetland Financial Group Limited:

Established in 1987 and headquartered in Hong Kong with offices around the world, the Zetland Financial Group is a business consultancy offering personal service and professional advice with total confidentiality. From its base in Hong Kong, the company is in a position to provide clients with the efficiencies and sophisticated infrastructure of one of the most dynamic international cities that is also an integral part of the rapidly growing economy of China.

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Stocks Hit ’97 Level, Signaling Long Slump


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Stocks Hit ’97 Level, Signaling Long Slump

By TOM LAURICELLA and ANNELENA LOBB

The Dow Jones Industrial Average tumbled below 7000 for the first time in 12 years as investors around the globe appeared to be giving up hope and girding for a prolonged recession.

Sam Stovall, chief investment strategist at Standard and Poor’s, talks with Kelsey Hubbard about the historical context of this decline.

U.S. investors joined a world-wide selloff that began in Asia and rippled through industries from financials to consumer durables to technology. The Dow dropped 4.2% to 6763.29, its lowest close since April 1997. It has lost almost one-quarter of its value this year and more than half since its high in October 2007.

Hardest hit were shares of already-battered banks. Shares in HSBC Holdings PLC, Europe’s largest bank, dropped nearly 19% after it announced plans to raise capital and pull out of a disastrous foray into U.S. consumer lending. Citigroup Inc. declined 20% and General Electric Co. slid 11%.

While there was plenty of fresh bad news to go round, traders said the latest downdraft broadly reflected a deepening sense of gloom among investors. Gone are the days where the mantra among investors was to "buy the dips," on the belief that when stock prices fall, they’re likely to rebound. Instead, the opposite sentiment has taken hold.

"It’s like an unending nightmare," says Kent Engelke, managing director at Capital Securities Management in Glen Allen, Va.

The latest readings on the U.S. economy offered little reason for hope. On Monday, the government said the personal savings rate jumped to 5% in January — its highest level in nearly 14 years, and a shift from recent years when households were spending more than they earned. In the past, many have called upon Americans to save more, but right now, weakness in consumer spending is depressing manufacturing and construction. The Institute for Supply Management said Monday that its measure of manufacturers’ employment plans fell to its lowest level since monthly records began in 1948.

In a separate report Monday, the government said spending on new construction tumbled in January. Of particular concern: a 4.3% annualized drop in private nonresidential spending, such as on hotels and lodging, the largest monthly decline in 15 years.

The economy, which shrank at a 6.2% annual rate in the fourth quarter, is likely to shrink at around a 5% pace in the current quarter, economists estimate. The Labor Department is expected to report on Friday that the unemployment rate — 7.6% in January — rose again in February.

As global markets tumbled, the U.S. dollar strengthened against a wide swath of currencies, sending an index that tracks the dollar versus six major currencies to a three-year high. Treasurys also climbed as investors sought lower-risk investments.

The Standard & Poor’s 500 stock index came perilously close to closing below 700 for the first time since 1996. It ended the day at 700.82, down 4.7%. The technology-laden Nasdaq Composite Index declined 4%.

Monday’s selloff may have been triggered in part by investor Warren Buffett, who told investors in his quarterly letter that the economy would remain "in shambles for 2009." In addition, there was news of another injection of taxpayer money into insurer American International Group Inc. — a stark reminder of the depth of the financial sector’s problems.

The relentless decline is pushing investors to the sidelines. The Dow, down 10 of the past 12 trading days, has fallen 7,401.24 points from its peak of 14164.53 in October 2007.

Robert Pavlik, chief market strategist at Banyan Partners LLC in New York, says he hears more exhaustion than panic from clients. "People are dejected and concerned," he says. The feeling is, "Why should I step out in front of a train?"

Bijon Mishra, 60 years old, a financial-services consultant in New York, has 80% of his main retirement account in U.S. Treasurys and bond funds, 5% in cash, and just 15% in stock funds. He had been thinking that with stocks down so much, he would begin shifting back into the market. But now he’s changed his mind. "I want to wait for a firm turnaround, and be as safe as possible," he says.

Investors fled U.S. stock mutual funds during the first three weeks of February, according to estimates from the Investment Company Institute. That’s after withdrawing a record 4 billion last year.

The market has yet to show signs of reaching a bottom. There has been no panic selling in large volume, which is typically the hallmark of a market nadir, a phenomenon known as "capitulation," traders say. Many analysts and investors are still worried that earnings estimates are too high and that the value of many stocks may still be inflated. That’s even after huge declines that have reduced companies’ share prices relative to earnings, known as a price-to-earnings ratio.

General Electric, which slashed its dividend Friday, was one of the hardest hit stocks on Monday, falling 11% to .60, its lowest close since 1993. Investors, in effect, are saying that GE’s profits will be tepid for years to come.

"Nobody wants to buy a market today that they think is going to be down 2 or 3% tomorrow," says Michael O’Rourke, chief market strategist at brokerage firm BTIG LLC.

The dour outlook is rooted in the fundamental challenges facing the global economy. Investors appear to have given up hope for quick fixes. Instead, many now believe that even with aggressive efforts by U.S. and other governments to shore up the financial markets and economy, the problems are so deep that it is likely to be months before there are concrete signs of their effectiveness.

Until the decline in housing prices shows meaningful signs of ending, market-watchers say, it will be difficult for stock prices to stage any kind of lasting recovery. Problems in the financial system also are impeding a stock-market recovery. The messes that big banks and other financial institutions have gotten themselves into are so complex that untangling them will likely take many months.

Jeffrey Saut, chief investment strategist at Raymond James & Associates, says investors are skeptical of anything that even hints of optimism. Mr. Saut, who turned negative on stocks in late 2007, began telling clients late last year to slowly get back into the market. Their response, he says, has been to send him hate mail.

"All investors are focused on is that they’ve lost a lot of money," he says
—Peter McKay and Kelly Evans contributed to this article.

Write to Tom Lauricella at tom.lauricella@wsj.com and Annelena Lobb at annelena.lobb@wsj.com

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Should You Stay Invested in Financial Stocks?

Should You Stay Invested in Financial Stocks?


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Should You Stay Invested in Financial Stocks?

By: Sara Nunnally
Posted: May 03, 2011


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Warren Buffett held a press conference on Saturday in Omaha, Neb. He answered questions about the trading scandal with David Sokol and Lubrizol. The public has been really focused on this story.

No surprise, really. David Sokol was on the short list of people who could take over for Buffett when he retires.

But there was another announcement that might be more important to investors.

It was about the billion investment he made in Goldman Sachs (GS:NYSE) during the financial crisis. Buffett bought stock warrants, which are kind of like options. These warrants expire in 2013, and Buffett said his company will be holding those warrants almost until they expire.

Before we get into why, let me explain some of the nuts and bolts of what stock warrants are and how they work.

What Is the difference between a Stock Warrant and a Call Option?

A stock warrant is just like a call option. A warrant or call option will give you the right to buy a financial stock at a certain price by a certain date. Buying either a warrant or call option means that you think the financial stock’s share price will go higher.

The main difference between a stock warrant and a call option is that warrants are issued by the company, while options aren’t. That means that stock warrants are also guaranteed by the company.

Companies, like Goldman Sachs in this case, will issue stock warrants to help fund some of its debt.

Let’s move on…

The stock warrants that Buffett bought have a “strike price” of 5. This means that he can buy shares of Goldman Sachs at 5… no matter what price the financial stock is actually trading at.

On Friday, Goldman Sachs closed above 1. If Buffett were to exercise his warrants, meaning “cashing in” his warrants for shares of the company, he would immediately have a profit on every share of stock. That’s an instant gain of more than 31%.

But Buffett says he’s holding his warrants.

He’s betting that Goldman Sach’s share price will continue to increase.

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(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy simplify the stock market for you with our easy-to-understand investment articles.)

Less Profitable Banks than Goldman Sachs…

That’s why I found it a little confusing when he said at the same press conference that some banks will be less profitable in the future. He said, “U.S. banking profitability will be considerably less in my view in the period ahead than it was in the early part of this century.”

This could be because banks will probably be deleveraging. Most companies deleverage by getting rid of excessive debt. Debt can be risky, so companies that are trying to deleverage might be in danger of defaulting.

Also, paying down debt eats into profits. Share prices could suffer, even though companies might be doing the right thing by paying their debts.

So why is Buffett holding his Goldman Sachs warrants instead of taking a huge 31% gain?

A Question of Timing

It may just be a question of timing. Some big banks have seen some harsh first quarters. In fact, Bloomberg reports:

Revenue at six of the largest U.S. banks declined by the biggest percentage in three years in the first quarter, as lending dropped and fees were reduced. With unemployment stuck above 8 percent, housing prices falling again and restrictions on charges, the banks are underperforming the broader market.

At the same time, banks have been reducing loan losses.

What this means is that banks might not be a good investment right today, but they will be a year from now. Buffett’s explanation? “Banks periodically go crazy. It’s always on the asset side.”

Here’s how the KBW Bank Index of the 24 biggest lenders in the U.S. have been performing against the Dow Jones Industrial Average.


View larger chart

Over the past three months, banks have been making lower highs and lower lows. This could signal that banks are headed lower.

What’s the Next Step?

So what should you do if you’re holding financial stocks? It truly depends on your own situation. If you’re holding a profit right now, it might be time to play with the house’s money.

In other words, take your original investment capital back out of the trade and bank it. Then you can let the rest ride, and never take a loss. If you’re holding a significant profit, you might want to take a larger portion out of the trade to protect some of your gains.

How much is entirely up to you and what you’re comfortable with… But be prepared to leave the rest of your investment for a while.

We can’t be sure how much more bank stocks could fall. It could be 10%, it could be 5%. So moving forward, playing with profits, you could also use a stop-loss.

For those of you who are holding some losses with bank stocks, you have two choices: cut and run, or hold through the bottom.

Which you decide will depend on how big a loss you are holding. Of course, most advisors will tell you that holding a loss is just tying up your money.

As I said, we don’t know where the bottom is for financial stocks, but we do know they are still falling.

Here’s the thing. Buffett can afford to hold through a downturn because he’s already sitting on a profit. If you’re holding a loss, the smartest thing to do would be to have an exit strategy. If you’re sitting on a 20% loss, and you figure you might as well hold and hope for some little rise in the stock price, you’re setting yourself up for more losses.

Get out, and save your money. You can always buy more shares of that company once it puts in a clear bottom.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

Sara Nunnally – About the Author:

Sara is Co-Editor of Smart Investing Daily. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, and CNBC’s Squawk Box, as well as numerous radio shows around the country.

Source: http://www.articlesbase.com/investing-articles/should-you-stay-invested-in-financial-stocks-4721517.html

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Article Tags:
stock warrant, goldman sachs, and warren buffett

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