ING hails tourism tonic for Hong Kong

HONG Kong's recent agreement with China to liberalise trade and some services between the former British colony and the rest of the giant country may have an unwieldy name.

But investors are betting the Closer Economic Partnership Agreement (CEPA) will act as a much-needed tonic for some of the territory's shares.

Investment bank ING is among those arguing that a decision under the pact to relax rules that govern the flow of tourists from the rest of China into Hong Kong will be of particular importance.

Most Chinese visitors have had to come in tour groups, but from next month many can visit as individuals. Regulations lifting the cap on the amount of cash tourists may bring may also be eased.

'The relaxation will definitely further improve the flexibility for tourists to spend and invest, and raise the profitability of companies that are exposed to these policies,' the bank said.

It picked out three potential winners: transport conglomerate China Merchants, airline China Southern, and transport operator Guaungshen Railway.

Although the trio back tracked today as market-wide profit-taking held sway, ING says they have plenty of upside. Guaungshen Railway, four cents or 2% softer today at HK$1.91, was forecast to reach HK$2.20.

'With the liberalisation...passenger demand growth should remain solid,' ING said. China Merchants, five cents or 0.6% down at HK$8.45, was also tipped to make headway.

Elsewhere in Hong Kong it was a day of red screens as brokers said that with Wall Street's weak performance yesterday and a decent local run-up in recent sessions, investors chose to lock in cash.

Global lender HSBC eased 75 cents or 0.8% to HK$99.25, garment exporter Li & Fung slid 55 cents or 4.1% to HK$12.85 and leading conglomerate Hutchison Whampoa was clipped by 50 cents or 0.9% to HK$56.75. The Hang Seng index gave up 92.74 points or 0.9% to 10,674.80.

Japanese equities also took an early tumble, undermined by a one-two punch of profit-taking and jitters about a more muscular yen, which could crimp exporters' profits if sustained.

Honda was the principal casualty, down 110 yen or 2.3% to 4640. Nissan fell six yen or 0.5% to 1253, while Toyota dipped 30 yen or 0.9% to 3210. Office equipment major Canon was lower by 50 cents or 0.9% at 5570 and Ricoh was off 15 yen at 2180, down 0.7%. The Nikkei 225 Average shed 57.73 points before recovering to close at 10,332.57, up

55.93 points.

In Australia shares had a softer tone as profit-taking held sway there too. The market touched its highest in a year last week. Brewing major Foster's lifted the lid on a profits drop as earnings were harmed by the closure of a Sydney brewery. Its shares were off two cents or 0.4% at A$4.57.

Medical Imaging Australasia slumped three cents or 4.4% to 65 cents after it blamed a loss on the sale of British unit Omnilabs for contributing to red ink of A$25.6m (£10.6m) for the year. The All Ordinaries index eased 7.7 points or 0.24% to 3167.3.

Singapore shares softened as bank stocks dropped. A July 2004 deadline for the disposal of non-core assets has been extended, damping hopes that asset sales could have led to one-off dividends. The Straits Times index was down 27.96 or 1.7% at 1602.43.