Earlier in the week, Federal Reserve chairman Alan Greenspan said that the US recession appeared to be drawing to a close.

Chief investment officer of BOCI-Prudential Asset Management, Lionel Kwok Ka-lok, said that despite a temporary slide in exports last month, the outlook for trade and export-sector companies looked positive.

The Census and Statistics Department said earlier in the week that Hong Kong's merchandise exports slumped a year-on-year 12.2 per cent last month to HK$106.6 billion.

Domestic exports slipped by 19.4 per cent to HK$10.3 billion and re-exports fell 11.4 per cent to HK$96.3 billion. Imports decreased by 8.6 per cent to HK$109.8 billion, leaving a trade deficit of HK$3.2 billion.

Mr Kwok said consumption in the US was picking up and orders for overseas products would improve in the latter part of the year.

'It will support the industrial sector and the export sector that have more international business.'

He said stocks of companies like Johnson Electric, Li & Fung, Esprit, Hutchison Whampoa, Cosco Pacific and China Merchants were expected to give good returns to investors.

'Since the beginning of the year, the performance of these companies has been good. We expect there will be a 20 per cent to 40 per cent increase in their stock prices by the end of this year,' Mr Kwok said.

Johnson Electric, which was trading at HK$8 in January, closed at HK$9.25 on Friday, a jump of over 10 per cent, while Li & Fung, which started the year trading at HK$8.50, climbed to a close of HK$10.85 on Friday, a rise of about 20 per cent.

Mr Kwok was quick to point out that it was external factors that would nudge up the Hong Kong stock market in the near term.

'I believe that there are still problems with the domestic economy. We still have to tackle the problem. Domestic consumption would remain subdued,' he said.

Edmund Harriss, investment manager of Investec Asset Management Asia, also agreed that small- to medium-sized export companies would benefit from the cyclical factors, in this case a recovering US economy.

'It is a sector to look at for immediate investment,' Mr Harriss said.

He also picked the property sector for mid-term investment. He expects a rebound in this sector, mainly due to low interest rates, improving affordability and attractive property prices.

'There's more interest in buying properties and there's an improvement in pricing power of properties,' he said.

Mr Kwok said the property market would not perform in the near term unless the Government came up with a clear housing policy to improve the sector.

Angela Fung, head of Hong Kong retail business at Dresdner RCM Global Investors Asia, also picked property firms for short- to medium-term investment.

She believed the financial sector would also benefit from a low-interest rate environment.

'There will be a technical rebound in the banking sector. Interest rates have reached the bottom. Any increase in interest rates will bring an improving margin to banks,' Ms Fung said.

She also recommends some defensive stocks, like utilities, because companies in these sectors are likely to have stable earnings this year.

Sam Lau Hing-sang, director of Asian equities at Baring Asset Management, said that apart from looking at the cyclical trend, investors should also choose stocks by observing the structural trend. He said following the structural trend would be a more reliable option, as it could bring a sustainable return.

Deflation is now a problem for the global economy in which many corporations are losing pricing power. In order to retain profitability, corporations need to reduce costs and outsource some of their production procedures.

Mr Lau said local companies which positioned themselves as outsourcers would benefit from this structural trend.

'The structural trend is more sustainable and it will continue for a couple of years. The overall earnings picture will be more reliable,' he said.

At the same time, companies supplying raw materials will benefit from the cyclical recovery as corporations start production in the economic pick-up.

Mr Lau said these stocks were under-valued.

Although the trade and export sector was the bright spot for investment, Mr Lau was concerned about their valuations.

'The market expectation on this sector is too high. Some of the stock prices increased too rapidly. They may be over-valued,' he said.