Hang Seng share price unsustainable?

Many buyers of Hang Seng shares have been lured by the belief that the bank is much better than its parent, HSBC. Speculators have so far taken advantage of such belief by pulling up the bank's share price despite the general downturn of banking and financial stocks.

I have always been skeptical of such belief. Hang Seng bank is only a local bank in Hong Kong, though it has been expanding its operations in Mainland China. However, the risks and difficulties that it faces are similar to banks in general, and in particular, with its expansion in Mainland China, it has additional risks owing to the falling real estate market in China.

In the Hong Kong side, Hang Seng bank still relies heavily on local mortgages. It is a fact that since the beginning of 2008, the Hong Kong property market has been slowing down. Sellers are eager to dump their properties even at a loss or substantial discount. The global financial crisis has made things worse and with the 40% (or more) drop in the Hang Seng Index, the local property market is now going to fall into the abyss. You can imagine the risks of mortgage defaults in the coming quarters.

The situation for Hang Seng bank is certainly worsened by its exposure to US financial losses. The bank is clearly under threats from the local and overseas markets! It's just a matter of time for share price to follow.

For those who still hold Hang Seng shares with gains, they may be too anxious to sell off considering the falling stock markets worldwide. It's better to get into cash when you have not been badly hit!

For those who want to buy, they will be on the sideline waiting for a sign of the bottom. Why catch a falling knife?

So you should have the answer to the question whether Hang Seng Bank's share price can be sustained (even after the dramatic drop today).