Hong Kong's recent volatility and continued uncertainty was reflected yesterday in three contrasting calls on the market, with two strategists forecasting hefty market falls and increasing pressure on the dollar peg. At the same time, HSBC Securities Asia strategist Abhijit Chakrabortti switched his rating on the market to overweight for the opposite reason - expectations of declining risk on the Hong Kong dollar. Investment consultant Independent Strategy is predicting the Hang Seng Index will plunge to as low as 6,000 points before the end of the year. The firm's chief economist, Bob McKee, predicts the yuan will devalue within the next 12 months, compelling the Hong Kong Monetary Authority to choose between abandoning the peg or continuing to raise interest rates. If the Hong Kong dollar was devalued, it would be by 20 to 30 per cent, he said. Between 30 to 40 per cent of the financial sector's capital base would be destroyed, due to a mismatch of Hong Kong dollar mortgages and deposits. Hong Kong's future depended almost entirely on Beijing's ability to withstand pressure to devalue the yuan and successfully reform its own economy, Mr McKee said, Another critical factor will be the flow of funds into the Hong Kong banking system in the coming months, generated by export sales from the mainland, and revenues earned by Chinese firms, he said. This will be a key determinant of liquidity in the local economy and whether interest rates have to rise to sustain the level of Hong Kong dollar deposits, he said. Regent Fund Management went further, saying heavy deflationary pressure would lead Hong Kong to abandon the peg within the next 18 months. If the peg was not dismantled, the Hang Seng would suffer an even worse fate, Regent said, plunging as low as 4,000 points by this time next year. Meanwhile, long-term Hong Kong bear Mr Chakrabortti said yesterday the blue-chip index would rebound to 12,500 to 12,800 points by this time next year as the risk premium on the Hong Kong dollar declined. He said Hong Kong's prime rate would settle down 125 basis points to 8.75 per cent over the next 12 months as lower asset prices eased pressure to devalue the Hong Kong dollar. 'This is cheap,' Mr Chakrabortti said of Hong Kong's market. 'Hong Kong equities [excluding HSBC] are cheap relative to interest rates for the first time since 1995.'