The worst is nearly over for Hong Kong retailers, but only those with brands that travel will flourish in the months ahead. As China's economic growth continues to improve the country's standard of living and people's earning power, there are opportunities for retailers with reasonably priced brand-name products with appeal to the middle and high-end markets. Hong Kong clothing retailers are likely to see better earnings growth from China than from the territory, analysts say. Recovery of Hong Kong's retail sector is not expected until the second half of 1996, so retailers who focus on Hong Kong may see further profit erosion. Analysts estimate Hong Kong's retail sales growth at a moderate 10 per cent for 1996 and 11 per cent for 1997. 'I'm not too enthusiastic about the future prospects of those companies that are focusing purely on the retail market in Hong Kong,' said analyst at Vickers Ballas Securities, Vincent Kwan. 'That's because the retail market is unlikely to rebound so soon. But the worst is nearly over and there may be some improvement in the second half of this year.' 'But if the majority of the companies' business is in China, then I think they can expect to see good growth if they have the right product.' Sassoon Securities said in a report that retailers which distribute goods through franchising and wholesaling have been most successful in China, because of the low overheads and operating risks involved, and higher efficiency achieved. Expanding into China had not proved successful for many Hong Kong retailers in 1995 because of the austerity measures, analysts said, so 1996 would be an easier year for those that had established strategic footholds in major Chinese cities. Garment retailer Goldlion Holdings is said to be well placed to reap the harvest after several years of aggressive expansion in China, leading to the popularity of its brand name there. Investors have rushed to buy the company's shares, lifting the price 15 per cent from the end of last year, and 207 per cent from the end of 1994. This is attributable to expectations the company will see 20 to 25 per cent profit growth over the next two or three years, with over 80 per cent coming from its business in China. Some analysts said Goldlion's price-to-earnings ratio, which is about 18 to 24 times, was justified because it could be supported by strong future earnings. Another clothing retailer with huge operations in China is Theme International, which also has seen a share-price upsurge. Theme's shares closed at $2.00 on Wednesday, a 150 per cent jump from 80 cents on December 29, despite reporting a 110 per cent plunge in interim profit. Theme posted a net loss of $920,000 for April-September 1995, against $9.02 million profit for the same period a year earlier. Investors became bullish after the company announced it won an exclusive right to distribute products of American brand name Calvin Klein in China. On the whole, analysts paint a brighter picture for retailers carrying upmarket well-established brand names in China, such as Dickson Concepts, Joyce Boutique, Chaifa and Esprit Asia. 'I think its a good time to start buying, selectively, just because most of them have been heavily discounted after last year's downturn, ' said Lennon Chan, director of Tai Fook Securities. Mr Chan said it was too early to determine whether some retail stocks would generate enough earnings growth to merit the meteoric rise in their share prices. A release of negative news could then trigger a crash in the share price, as seen in the case of Top Form International. Lingerie-maker Top Form did not enjoy Goldlion's success in promoting its products in China, and has faced financial difficulties due to depressed retail sales in China and the Philippines. It recently reported a precipitous fall in profit, from $11.3 million in 1994 to a $68 million loss in 1995.