Hong Kong stocks are expected to face profit taking early this week after strengthening last week, but traders said bullish momentum should gather as investors position themselves for a traditional New Year rally.
Mainland Chinese stocks listed in Hong Kong, which have firmed as investors sought to buy into China's booming economy, are among those expected to be hit by profit taking after a regulator seized control of China's fifth-largest broker, China Southern Securities, for "illegal and irregular management operations".
"This will cool down China plays a bit. The sector is already way overbought and the news will give investors an excuse to take profits," said Ben Kwong, an associate director at KGI Asia Ltd. "But sell-off pressure is not expected to be massive."
However, market players said any move by China to clean up its notoriously unruly securities industry was positive.
Hong Kong's benchmark Hang Seng Index gained 1.79 percent on Friday, the first trading day of 2004, to close at 12,801.48, marking a gain of 2.77 percent in the holiday-stunted week.
The H-share index of Chinese firms traded in Hong Kong, which has more than doubled over the past year, jumped 15 percent last week to 5,363.06.
Market players are expected to monitor an annual policy speech by Hong Kong Chief Executive Tung Chee-hwa on Wednesday. But they said they did not expect any surprises in the speech, which is seen focusing on constitutional reform and measures to further prop up the economy.
A mixed performance by Wall Street on Friday offered little direction, traders said.
The blue-chip Dow Jones industrial average fell 0.42 percent to 10,409.85, while the technology-laced Nasdaq Composite Index eked out gains of 0.17 percent to 2,006.68.
However, traders said market confidence was likely to pick up as the week progresses since Hong Kong stocks have traditionally been firm in January and analysts are bullish for 2004.
"This year I think we should continue the run that we've had on last year," said Nitin Dialdas, analyst at Richmond Asset Management.
"(It) should be another bullish year, basically because the economy is turning around," he said.
Traders say the Hang Seng looks set to hit 14,000 in 2004, nine percent above Friday's close, supported by a stable property market and speedier-than-expected economic growth fuelled in part by tourism.
Banking and property plays, such as leading developers Cheung Kong (Hong Kong) Holdings and Sun Hung Kai Properties Ltd are among the top picks of market players.
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