HONG KONG: Hong Kong's stock market is expected to continue its upward momentum this year, in spite of several uncertainties that might wind down its bull run since the second quarter, says Paul Pong, managing director of Pegasus Fund Managers Ltd.

Pong expects the Hang Seng Index to range between 26,000 to 30,000 points, and that it will be most likely to wind up at around 28,000 points by the end of the year.

He also forecast the Hang Seng China Enterprises Index will reach the 18,000 mark and the Shanghai Composite Index will close at around 4,000 points by year's end.

"The situation concerning inflation pressure, interest rate rises, and the US stimulus package will be clarified as time passes in 2010. The Hang Seng Index is likely to experience a temporary slump, to a bottom of approximately 20,000 points by May, and then rebound to another high in the fourth quarter," said Pong.

Pegasus expects medical, new energy, tourism, agriculture, infrastructure and retail sectors to perform strongly this year, while telecommunications, real estate and electricity sectors will face a hard time in 2010.

Pong said other factors, such as Sino-US trade friction and the US government Treasury purchase would also affect the stock market in the first half of the year. However, he expects the market to move upwards again when all those uncertainties eventually cleared up.

Concerning the US stimulus package, Pong said the withdrawal of the package will depend on the country's economic sustainability, as well as its capital flows.

He believes it is still premature for the US to withdraw the stimulus package at this moment, as its Consumer Price Index and unemployment rate are still at relatively high levels. He maintains that even another financial crisis is possible, if the US scales down its stimulus funding at the wrong time.

Commenting on Hong Kong's property scene, Pong noted the real estate market in the city thrived last year. Local housing prices went up almost 30 percent, while the volume of transactions realized a 24 percent sharp increase.

"For the first time in history, when the city suffered from a financial crisis, real estate prices were way up, " said Pong.

"Several reasons could account for it, such as the scarcity of land and apartments in the city. However, these days, the whole world is optimistic about China's future economic development. With Hong Kong so closely linked to the mainland, international investors feel more secure in purchasing property assets in Hong Kong, which will lead to continuous growth in the local real property market," he predicted.

(HK Edition 01/08/2010 page3)