Hong Kong's blue chip stocks could fall further this week as an expected US interest rate rise nears, but China's assertions that economic-cooling measures are working may halt recent declines of China plays.
Market watchers said the benchmark Hang Seng Index could drop to the 11,500-point level in upcoming trading sessions if investors continue to flee China stocks listed in Hong Kong on fears that Beijing might take more steps to slow its economy.
The Hang Seng, which comprises Hong Kong's 33 leading stocks, fell 4.3 percent last week to close at 11,855.55, its lowest close in three weeks. The China stocks tumbled five sessions in a row to finish the week down 10.54 percent at 3,919.37.
"The market will continue to be driven by concerns over an interest rate increase in the United States," said Conita Hung, a director at Delta Asia Securities. "Locally, the focus will be on China stocks and the Chinese economy," she added.
Next week, US markets will closely watch data on durable goods orders. Economists are predicting a May rebound after a decline in April. But they said the figures will not likely shake the belief that the Federal Reserve will raise rates by a quarter when the Federal Open Market Committee meets on June 29 and 30.
In China, the central bank's comments on Friday that the country's economy is in good shape and that recent measures to tame an overheating economy are taking effect helped temper expectations of an imminent interest rate rise, which would be the country's first hike in nearly 10 years.
Beijing has so far tried to slow the economy by forcing banks to keep more money in reserve instead of lending it out, and by curbing new investments in red-hot industries such as steel, aluminium and cement.
Central bank officials have said recently that interest rates may have to rise if inflation passes 5.0 percent. China's consumer price index in May was up 4.4 percent from a year ago, the fastest pace in seven years.
Analysts said uncertainties could weigh on the Thursday debut of Ping An Insurance, China's second-largest life insurer, which raised US $1.84 billion from a stock offering priced near the middle of expectations at HK$10.33 per share.
The shares were sold at 24.6 times forecast 2004 earnings on a fully-diluted basis, making it more expensive than market leader China Life Insurance Co Ltd, which trades at about 17 times expected 2004 earnings.
On corporate earnings, TPV Technology Ltd, the world's second largest computer monitor maker, is scheduled to release its first quarter results on Wednesday.
The firm posted revenue growth of 42 percent in fiscal 2003 and is targeting a similar growth rate for the full year this year to US $2.9 billion.
Analysts expect deflation to have eased in the last month. Hong Kong's May consumer price data, due on Monday after the market close, is expected to have fallen one percent from a year ago compared with April's 1.5 percent drop from the year ago period.
Hong Kong markets will be closed on Tuesday for the Dragon Boat Festival holiday.