China, Hk Stocks Rocked By Deng Health Worries

Concerns over the health of Chinas paramount leader Deng Xiaoping rocked mainland, Taiwanese and Hong Kong stocks yesterday, with Shenzhen stocks taking the biggest hit by early afternoon, brokers said.

Investor attention turned to Beijing after sources said on Monday that Dengs deteriorating health had forced Communist Party chief Jiang Zemin and other leaders to cut short provincial trips to return to the capital.

Chinas foreign ministry said on Tuesday there had been no major change in the health of 92-year-old paramount leader Deng Xiaoping. There has been no big change in Comrade Deng Xiao-pings health, a foreign ministry spokesman told a news briefing in Beijing.

 

Officials of the State Council, or cabinet, were unable to give the usual official response to queries about Dengs health that he is as well as can be expected for a man of his age, saying they were investigating the situation.

We have had these rumours about Deng Xiaoping passing into the great unknown every three weeks for the last three years but this one seems to have a little more substance to it, said Peter Churchouse, regional strategist at Morgan Stanley.

When Deng departs there will inevitably be a degree of uncertainty and stock markets dont like uncertainty, he said.

In the currency market, worries about Dengs health gave psychological support to the dollar, which rose as high as 124.70 yen.

At this point, it would be a momentary positive for the dollar, said Kenneth Landon, senior currency analyst at Deutsche Morgan Grenfell in Tokyo.

He said this would be particularly true against the yen, which would be most at risk because of Japans geographical proximity to China. But I wouldnt expect any major political changes, he added.

The Hong Kong dollar weakened slightly against the US dollar, testing the 7.75 level from Mondays level of 7.7497, but traders said activity was light.

Among the China-related stock markets, share prices in Shenzhen were hit hardest. By 0537 GMT the B-share index had plummeting 13.52 points, or 8.88 percent, while the A-share index lost 26.61 points, or 7.11 percent, to 347.57. In Shanghai, the B-share index fell 4.48 points, or 6.57 percent, to 63.73 and the A-share index tumbled 49.45, or 4.83 percent, to 975.28.

Shanghai A shares started to fall after Shenzhen dropped on the Deng rumours, said one trader at a Shanghai brokerage. If the reports are confirmed, the impact on the market could be quite big.

Alex Conroy, an analyst at ING-Barings in Shanghai, said talk about Dengs health seemed to be a handy excuse to sell. I dont think anyone has any concrete information, he said.

In Hong Kong, share prices accelerated their decline ahead of the midday close. The Hang Seng Index skidded through initial support at 13,000 points to end the morning down 196.59 points, or 1.50 percent, at 12,948.03.

Hong Kong is a very over-owned market. Relative to other markets as well as relative to other asset classes, Hong Kong equities look expensive, said Abhijit Chakrabortti, senior strategist at Lehman Brothers.

In Taiwan, the weighted index fell 45.15 points, or 0.59 percent, to 7,642.03, hit by concerns about Deng and comments by central bank governor Sheu Yuan-dong that the market had risen too much recently.

Churchouse said Taiwan had been hit less than other markets because of the domestic liquidity conditions which really have been leading the market.

While strategists said the slump was a knee-jerk reaction, they said Deng should not have a lingering impact.

From a longer-term perspective this should not be a major damper on the market but of course the near-term sentiment issue will exist, said Chakra-bortti. The key issue is that he has not held political office for a considerable period of time and his influence is more as a patriarchal figure.