Editor's note: This is the final installment of the two-part series that recounts the impact of financial downturn on the stock and property markets.

For Hong Kong stocks, the year 2008 has been most dramatic, with share prices in all listed firms recording sharp losses dragged by the global economic downturn.

The Hang Seng Index (HSI), a measure tracking blue-chip stocks in Hong Kong, lost more than half of its value within 12 months from over 31,000 points in late October 2007 to slightly over 11,000 points in the same period in 2008.

Analysts describe the recession, which occurs once in 100 years, as unpredictable. "The market volatility is so bad; the market turns into a gambling table, and it doesn't follow the pattern any analyst would predict," said Andrew To, sales and research director at Taifook Securities.

The market volatility will get worse in the second half of this year as Asian economies gradually feel the pinch of global downturn, he said.

The blue-chip index lost nearly 4,000 points between September and October trading. The HSI closed at 11,015 points on Oct 27, the lowest level in 2008, following comments made in a previous day by the US government that the global recession was far bottoming out.

Shares in energy and other natural resources companies have been heavily oversold, which brought a knock-on effect on aviation and logistic companies. "Stocks have been undervalued due to economic circles, and companies dealing with oil, steel, coal and other natural resources are affected by the changing commodity prices," said Ben Kwong, head of research at KGI Asia.

"Those stocks bounced back toward the end of the year as investors make bargain hunting," Kwong said. Crude oil prices exceeded a record high of $147 a barrel in July this year but hover at $40 in December.

Mainland property players have been oversold due to property bubble burst leading to the fall in housing prices. But they recorded modest growth toward the last two months, supported by government's policy on property market.

Lukewarm IPO

The volatile market discouraged companies to float shares in Hong Kong. Hong Kong Exchanges and Clearing (HKEx) saw its listing members reach 1,084 this year, little changed compared with last year's 1,048.

A booming Malaysian mining group, CVM Minerals, launched the last IPO this year, recording a 20 percent jump in its trading debut, after raising HK$118 million in Hong Kong.

Analysts say there are no signs of the IPO market getting warmer, especially in the first half of 2009.

Strong Petrochemical Holdings, a mainland oil, petroleum and petrochemicals trader, aims to make the first trading debut in Hong Kong for 2009. But analysts warn the poor market conditions may affect the company's share sale.

The company plans to raise HK$250 million by selling 100 million new shares at HK$2.5 each, which is expensive given the fact it is a small-cap group, analysts say.

Gloomy outlook

Dick Lee, a corporate finance officer of Phillip Securities, said the stock market will remain gloomy in the first half of 2009, hurt by weakening corporate earnings during the time.

He predicts the HSI will hover at around 16,000 points level in the first six months and reach 20,000 in the second-half. "By then, the positive effect from the government's stimulus packages will be seen."

KGI Asia's Kwong thinks Hong Kong blue-chips will see slow growth in 2009, "because after a big correction, investors tend to become cautious."

However, oil, coal and telecom players will record active transactions, according to KGI Asia, helped by government's efforts at maintaining 8 percent GDP growth in the year.

(HK Edition 12/31/2008 page3)