Hong Kong stocks face a volatile week as the US presidential election and China's first interest rate hike in nearly a decade raise risks for investors. "We are facing a lot of uncertainty," said Y.K. Chan, strategist at Phillip Securities.
Analysts said the rise in the one-year lending rate to 5.58 percent from 5.31 percent effective on Friday reflected a shift in economic strategy and is expected to kick off a series of increases to cool growth in China, the world's seventh-biggest economy.
The blue chip Hang Seng Index fell 0.45 percent on Friday to 13,054.66, trimming its gain for the week to 0.3 percent.
Traders said the Hang Seng would range between 12,700 and 13,400 over the coming week. The bulk of volatility would be seen in China plays listed on the Hang Seng Enterprise Index of China registered firms, better known as H-shares.
China commodity shares such as Jiangxi Copper and Aluminium Corp of China Ltd (Chalco) would face further pressure from the rate hike, which may slow commodity demand, they said.
Insurance firms such as China Life Insurance Co Ltd and Ping An Insurance are the main beneficiaries of the rate move, because of the high level of funds the government requires them to keep in bank deposits.
"The focus will be on (China) insurance companies. They will continue to outperform the market as investors anticipate more rate hikes in the coming months," said Alex Tang, research director at Core Pacific-Yamaichi International Ltd.
The Hong Kong dollar is pegged to the US currency, making Hong Kong stocks cheap when the US unit falls.
All eyes will be on the US presidential election on Tuesday, with polls showing a tight race between President George W. Bush and Democrat contender John Kerry.
The blue chip Dow Jones industrial average ended 0.23 percent higher at 10,027.47 on Friday, helped by gains in energy companies.