BRITAIN ultimately will back down in the political row with China, says Nomura Research Institute Hongkong.
However, the Sino-British impasse over the extent of political reform in Hongkong is likely to drag on into July, threatening business confidence, Nomura says.
Meanwhile, the resulting erosion in confidence could inflict lasting damage on the territory's economy and its fundamentals, in particular the residential property market.
''The fundamentals have not as yet been materially impacted and it is likely that the stock market would bounce back strongly,'' the Japanese brokerage firm's research arm says in a report released yesterday.
''However, if . . . this issue drags on for another six months or more, then the outlook begins to look a little less rosy.
''Confidence will gradually erode, with the first concrete indications likely to come in the form of weak retail figures this Christmas.'' However, the brokerage maintains a positive long-term view of the market.
While the substance of the proposed reforms is of little consequence in practical terms, it has become ''abundantly clear'' that China will not compromise over what it perceives to be matters of sovereignty.