HONG KONG and China-linked stocks will be prime investments this year, Raymond Chan, associate director at Barclays Global Investors Hong Kong, says. 'We are basically bullish on the Hong Kong market,' said Mr Chan, who manages Hong Kong, China and Taiwan funds for the group. 'We believe the Hang Seng Index could reach 16,000 points this year because the market will continue to be re-rated from 14 times to 16 times earnings with the underlying double digit earnings growth.' Barclays' 16,000 points forecast for the Hang Seng Index is at the top end of recent forecasts. Last year, Barclays had an overweight position in the property sector (when a fund manager takes the view that a particular sector will outperform). Mr Chan said he remained positive on the sector, particularly mass residential property, but less so than last year. 'As we move towards 1998, there is a growing supply of land and, in my view, the SAR government doesn't want to see property rising too quickly. 'This year, we will reduce our exposure to property from overweight to neutral.' Mr Chan said blue-chip Hong Kong stocks might give up some of their leadership position to mid-cap stocks this year. 'Last year a lot of blue chips hit new highs but many second-tier companies were trading at very low values. I think sooner or later investors will look at quality second-tier companies.' He said the consumer sector would be one to watch this year and believed conglomerates would enter the investment spotlight. 'Hutchison will do well. It has a good position in the global market. I am very positive about the Cheung Kong/ Hutchison group.' 'Certainly the economic growth for China will be better this year. Inflation is under control according to published numbers and I don't think the yuan will depreciate too much. 'There are problems in China but the overall picture is still positive.' The Hong Kong market was undergoing a structural change which would eventually lead to China plays having a much bigger representation in the Hang Seng Index. 'Over time, the composition of the market will change and China plays will make up far more than the current 4 per cent of the Hang Seng Index. The market's relative property content will come down and it will be less sensitive to US interest rates.' Despite his optimism about Hong Kong's red-chip sector, Mr Chan said investors would need to be a lot more selective this year. 'At the moment, they are very popular and have no problem coming to the market to raise money but investors will need to become more selective as the list gets bigger.'