Hang Seng Index hits 6-year high to close above 25,000 despite notes of caution

The Hang Seng Index rallied to close above 25,000 for the first time since May 2008 yesterday, even as a top government forecaster warned that economic growth in 2014 would probably fail to hit 3 per cent.

Surging foreign fund inflows have driven the city's stock market higher as international investors ramp up exposure to mainland shares. The move reflects growing confidence that Beijing policymakers have halted a slowdown in the world's second-biggest economy.

Investors have also been buying stocks in anticipation of the start of the Shanghai-Hong Kong Stock Connect scheme, the so-called "through-train" programme to link the two markets and close a persistent valuation gap between mainland A-shares and H-shares listed here.

Consultants warn that the city's retail investors could get hurt if they begin to pile into the market fearing they will miss out on the next stage of a rally that has added 16 per cent to the value of the Hang Seng from the year's low in March, lifting it to 25,122.

The Shanghai Composite Index has also been trading higher, finishing yesterday at 2,245.33 points, its highest this year.

"It is reminiscent of the through-train story back in 2007, and upbeat market sentiments might be short-lived," Bright Smart Securities research manager Stanley Chik Yiu-fai said.

Chik's note of caution came as the government economist, Helen Chan, said the city's economy was "unlikely to grow at 3 per cent this year".