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Analysts say subprime crisis has peaked as HSI sets records
October is traditionally a  volatile month  for  the stock market, but most analysts do not expect  any trouble this month as the worst is behind the market after the summer subprime mortgage market meltdown.
At worst, the Hang Seng Index could decline 5 per cent or so  and that would be by the end of the year, the more bearish money managers said.
The Hang Seng Index yesterday rose 3.9 per cent to close at 28,199.75 points, a record high and the first time the market had  exceeded  28,000 points. The index crossed the 27,000-point threshold for the first time on  Thursday last week, only three days after  surpassing  26,000 points.
'We've already had the correction in August.  The US market is benefiting from  more relaxed monetary policy and there's a lot of liquidity coming into Hong Kong, which should support the market,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.
'The Hang Seng tends to correct when it trades at over 20 times price-earnings and now we're at 70 times, with more upside. And we haven't had a correction.'
Historically, October sees stock markets temporarily head lower as institutional funds take profit earned earlier in the year and position themselves for the traditional end-of-the-year rally.
Retail investors also pulled back from the market and would not return in full force until they had received year-end bonuses, analysts said.
This month,  however, the mainland's shuttered markets will benefit Hong Kong, among other factors.
'The A-share market  is closed for a week for the National Day holiday, so there are funds coming to buy Hong Kong stocks instead,' said a director of a Hong Kong private fund. 'But the money coming from China is likely to stay after gaining profits, instead of going back to the mainland, because the A-share valuations for  mainland companies are still higher than the H-share valuations.'
The Hang Seng Index  has gained 38 per cent since hitting a  low on August 17 amid fears of a financial meltdown   set off by the US subprime mortgage crisis.
Since Beijing announced on August 20 that it would allow individual investors to buy shares in Hong Kong, shares of Hong Kong Exchanges and Clearing,  the stock exchange  operator, had advanced 115 per cent  to close yesterday at HK$246.60.
The most recent record shatters all but the latest predictions on where the market might end the year.
Henderson Land Development chairman Lee Shau-kee said on September 20 the blue-chip index could reach 28,000 this year and barring any unforeseen disaster could hit 30,000 by the Lunar New Year.
In a  report last Thursday, UBS said the Hang Seng Index  was likely to hit 28,000 by the end of the year and could go as high as 35,000 by the end of the first half  of next year.
Louis Wong Wai-kit, a director at Phillips Securities, said that if the US Federal Reserve did not cut interest rates at its  October 31 meeting, disappointment  could  dampen the market and bring about some volatility.
But  Mr Tang said: 'The market has already priced it in.'
New measures from Beijing to cool the mainland economy, expected to be announced at the close of the Communist Party  congress in  the middle of the month, also could  affect sentiment.
Mr Wong expects a 5 per cent correction to the Hang Seng Index by the end of the year and said it could close the year at 30,000 points.



Market tipped to ride volatility as woes ease