Hong Kong's asset deflation story may be old, old news but it is certainly not going away.
Yesterday, figures were released marking the 50th consecutive month of consumer price deflation.
The grinding adjustment of Hong Kong's economy to the post-handover, post-property bubble era is still taking its toll on the stock market, making domestic demand growth stories as rare as an impoverished lawyer.
The lingering effects of deflation explain why fund managers are lukewarm on the market at best.
The consumer price index release coincided with Merrill Lynch's latest monthly survey of regional portfolio managers. While Hong Kong had a net positive reading on liked or disliked markets, it was a mere 2 per cent in the black.
While things look weak on the economic front, earnings growth among domestic stocks will be muted. And it is difficult to see any upside surprise to the grinding story of Hong Kong's adjustment while the currency peg remains in place, some commentators argue.
Taking 1990 as benchmark, Hong Kong is still 45 per cent overvalued against the yuan even after 50 months of deflation.
'At the present rate of re-alignment, it will take another three to four years before the relative value of the two currencies return' to the level they were at before the yuan was devalued in 1994, BNP Paribas Peregrine said.
That may be taking too gloomy a view as many would argue that a premium for Hong Kong should be factored in.
The uninspiring deflationary outlook is key to why BNP Paribas Peregrine has an 'underweight' call on the Hong Kong market in regional portfolios.
Given the economic problems, the house has set a year-end Hang Seng Index target of 10,426 points or just 9 per cent upside.
Analysts Chiu Man Wai and Carmen Chan suggest the SAR's portfolios be weighted towards external plays such as trading firm Li & Fung, chip equipment maker ASM Pacific and consumer electronics firm VTech.
Although property stocks are at a 32 per cent discount to their net asset values, the bottom end of their range, abundant supply and weak demand could cause flat prices to drop another 5 to 10 per cent and keep developers on the defensive, BNP Paribas Peregrine said
Daiwa Institute of Research takes a similar line on Hong Kong strategy, warning that a macroeconomic recovery will not arrive until late this year at the earliest.
Daiwa analyst Jonas Kan suggests looking for exposure to China's robust economy with stocks such as China Mobile and television and handset maker TCL International.
Of course there are some optimists who make a case for a more aggressive portfolio. Merrill Lynch analyst Henry Ho is predicting a turnaround in the domestic economy with 3.7 per cent growth, following a 'buoyant external trade and recovery in domestic consumption'.
He recommends Wharf, Henderson Land Development on an expected pick-up in flat sales, Dah Sing Financial for its exposure to lending and a play on a cyclical upturn in advertising - none other than the South China Morning Post.