Funds exit spurs finance groups to lower HSI targets

Two leading financial institutions have cut their forecasts for the Hang Seng Index in response to an outflow of liquidity as the US dollar strengthens and more stock deratings because of slower mainland economic growth.

CCB International Securities cut its forecast by 2,400 points to 22,100 for the index by year-end. Instead of the 12 per cent full-year gain that it expected at the beginning of the year, the investment bank is forecasting a 3 per cent loss for the indicator.

Meanwhile, Citibank lowered its 12-month forecast for the market to 24,000 points from 24,500, as interbank funding costs on the mainland rose to a record high.

Peter So, the managing director and head of research at CCB International, said: "Under our bear case scenario, there is a chance the Hang Seng will dip 10 per cent to 19,500 [points] in the third quarter on further weakening economic indicators and earnings disappointments in the interim results season, which could prompt further earnings downgrades."

However, the new targets still represent upside from the present level. The index rose 0.5 per cent to finish at 20,440.08 points yesterday. It has fallen 10 per cent since the beginning of the year.

So recommends accumulating carmakers such as Great Wall Motor and Geely Automobile on speculation those stocks will rebound in autumn, usually a peak season for them. He is also bullish on technology firms due to rapid broadband penetration on the mainland and the multitude of mobile internet applications being launched.