The outlook for Hong Kong share prices hinges on whether China will make any credit tightening measures to rein in rapid economic and stock market growth, dealers said. They said investors are kept on the sidelines as they expect an interest rate hike from Beijing as early as later on Friday.
"Everyone is waiting when China will announce an interest rate increase. If it does, you will see a correction in the market," said Castor Pang, strategist at Sun Hung Kai Financial Group.
Last week, the Shanghai Composite Index breached the historic 4,000 points level for the first time, putting stocks there on Price/Earnings Ratios - a standard measure of valuation - at about 50 times compared with the Asian average of 14-18, according to analyst estimates.
As the Chinese markets have gone from one record to the next, in massive volumes sometimes second only to Wall Street, officials have repeatedly warned of the dangers of a bubble bursting which would hit small investors hardest.
This prompted Hong Kong tycoon Li Ka-shing and HSBC executive director Peter Wong to warn about the risks of trading highly priced Chinese stocks and dealers said this could continue to weigh on market sentiment next week.