Tech stock craze haunts HK

HONG KONG, NOV 28: For the first time since the red-chip fever of 1997, the Hong Kong stock market is gripped by a speculative frenzy tha...

HONG KONG, NOV 28: For the first time since the red-chip fever of 1997, the Hong Kong stock market is gripped by a speculative frenzy that promises huge returns, and massive risks.

In 1997, the craze was for companies boasting Chinese assets and connections in Beijing. This time around, investors are losing their heads over technology.

Shares of cable-television and Internet firm i-Cable Communications jumped more than 50 per cent on their first day of trading in Hong Kong on Wednesday. Even after its shares fell back Thursday, the company still ranks as one of the most expensive cable-Internet plays in the world.

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The first two constituents of the new Growth Enterprise Market, software manufacturer Timeless Software and Chinese biochemical firm China Agrotech, saw their shares rise 80 per cent and 60 per cent respectively on their first day of trade Thursday. Timeless has seen only moderate revenue growth in the last two years, and Agrotech has nothing to do with the computers or theInternet.

Meanwhile, a slew of lesser players, such as property developer Hing Kong Holdings, which has doubled in price since Wednesday after it invested in a Chinese technology park, have seen their shares carried higher by the technology craze

.To many market watchers this rally has the hallmarks of the speculative excesses that fuelled the China-affiliated red chips. Between mid-1996 and mid-1997, Hong Kong’s index of China-affiliated shares quadrupled, only to lose four-fifths of its value by mid-1998. It has yet to recover.

"It’s completely speculative," says Ben Kwong, associate director of investment services at KGI Asia, describing the recent trading. "People are following the crowd; they don’t care about fundamentals."

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But will this tech frenzy mirror the rise and fall of the red chips? Probably not, say fund managers, analysts and stock brokers with an emphasis on the "probably." While many individual stocks will end up losing money for investors, the wider trend has legs that could keepit going for years, they say.

The red-chip shares were essentially a play on the Chinese economy and the handover of Hong Kong to Beijing’s rule in July 1997. This time around, euphoria over technology is combining with optimism over China’s imminent entry into the WTO. (WSJ)