STOCKS look set to make further gains this week amid high liquidity and expectations of further cuts in interest rates. Trade could become more choppy as many of the counters which have led the rally fall victim to profit taking. Some brokers are tipping the market to reach 12,000 over the next few weeks and say it might soon be ready to challenge its historic high of 12,157.57 set in February 1994. Schroder Securities Asia research analyst John Schofield said: 'I see more upside but it might be a bit more choppy a few of the old leaders are having corrections. 'We should see it move up close to the all time high but I don't think it will reach 12,000 in this rally.' The Hang Seng Index closed last Friday at 11,469.40 after piling on 357.53 or 3.2 per cent over the week. This was its highest close since February 9, 1994. The major factor behind the surge was the continued strong inflow of foreign funds. Turnover averaged $7.54 billion last week while Friday alone recorded turnover of $9.57 billion. A major feature of this week's trade should again be the heavy inflow of foreign money which should ensure the market maintains its upward momentum despite any increase in profit-taking. Standard Chartered Securities research director Edward Chan said: 'Over the long term, liquidity remains the major story.' Another factor providing support will be the expectation of further interest rate cuts. Last week there was a round of rate cuts led by the US Federal Open Market Committee which trimmed US rates on Wednesday. Hong Kong followed immediately with both the Hong Kong Monetary Authority trimming its rates on Thursday and the Hong Kong Association of Banks following suit on Friday. The confirmation of the expected rate cuts led to some profit taking but not much as the market's expectation of further cuts remains unabated. Many brokers see these cuts being delivered later in the year and the expectation should keep the market advancing. Kleinwort Benson Securities sales head Nial Gooding said: 'Anybody with experience in the market knows US interest rate cycles are never less than two years long.' Other positive features helping the index to advance this week include the expected improvement in China's austerity measures and the continued stable political situation in Hong Kong. Brokers say trading this week should attention continuing to focus on laggard utilities and conglomerates. Previously in favour properties and banks came under selling pressure after the interest rate cuts were delivered as investors sought to lock in profits from the sizeable advance in these two sectors. This week could see another round of buying on banks if Bank of East Asia provides a positive surprise when it announces its final results on Thursday. The two other blue-chip banks, HSBC and Hang Seng Bank, are due to post their final results on February 26 and might also attract interest in advance of this. Most brokers see the upcoming reporting season for banks being a boost for the whole sector. China Everbright Securities research director Samuel Lau said: 'The good results from Ka Wah Bank and JCG indicate the other banking stocks should also put in a good performance.' While most brokers are positive about this week, others are tipping the market will go into a long-overdue correction. Even these are still optimistic about the medium to long term. Taiwan Securities dealing director Edwin Cheung said: 'Next week there should be some consolidation around the level of 11,500 and the index could draw back to 11,000. 'That will be a good opportunity to absorb the blue chips and prepare for another rally. 'The high liquidity means there is no real obstacle.' Mr Schofield said the trading range this week should be between 11,400 and 11,900.
