Sandi Flockhart addresses a reporter's question at yesterday's press conference. Bloomberg

HONG KONG: Shares of HSBC bounced back almost 14 percent yesterday after their worst slump in more than two decades in Monday trading. The shares, however, are expected to remain stagnant as a result of the bank's weakening outlook.

The stock gave some relief to investors by advancing 13.94 percent, or HK$4.6, to finish at HK$37.6 yesterday. The rebound in HSBC shares also lifted the benchmark Hang Seng Index by 3.08 percent, or 349.47 points, to 11,694.05. Mainboard turnover declined slightly to HK$33.4 billion from Monday's HK$35.7 billion.

Responding to the 24 percent plunge of shares on Monday, HSBC's Asia Chief Executive Officer Sandy Flockhart said the market will remain volatile, as market makers and hedge funds are moving into position to push down the share price.

"As investors in the free market, we must understand that this will happen," Flockhart said in a press conference in Hong Kong yesterday.

Flockhart noted that the bank's rights issue will go ahead, even if share prices fall below the price of the rights offerings-at HK$28. He also advanced the view that Monday's plunge related to technical aspects of trading, rather than to panic sell-off in the market.

"We'll still continue to make money," Flockhart said, while stressing that HSBC will be one of the institutions to "get through the storm".

Patrick Shum, Karl Thomson Securities' chief portfolio strategist, said the rebound of HSBC is normal, since the shares dropped too steeply on Monday.

"The activities of some hedge funds and market derivatives may continue to impact the shares to show some rapid jumps or falls," Shum said. "However, the range will be around HK$32 to HK$38 in the near term."

He said HK$28 will be a supporting level for the shares, while he also expects the stock may retrace slightly today.

The drastic plunge of HSBC shares also triggered an inquiry by the securities watchdog. Both the Securities and Future Commission (SFC) and Hong Kong Exchanges and Clearing (HKEx) said they were aware of the movement of HSBC share prices during the 10-minute close auction period on Monday.

"HKEx continues to monitor the market activity closely and will report any irregularities it may observe to the SFC," the territory's bourse operator said in its statement on Monday.

Financial Secretary John Tsang said the government noted that many Hong Kong people are shareholders of HSBC. He said he had met already with SFC officials to discuss the issue.

"SFC is going to look into it and follow up the issue," Tsang told reporters yesterday.

HSBC's shares have been tumbling - nearly 42 percent, since the bank announced a $17.7 billion rights issue priced at HK$28 in Hong Kong to shore up its balance sheet.

(HK Edition 03/11/2009 page16)