The Hong Kong market has hit a roadblock but is unlikely to be shifted into reverse. Instead, market watchers should prepare for a fourth-quarter rally that will carry the Hang Seng Index to 15,000 points by the end of the year, according to ABN Amro director of Hong Kong research Charles Whitworth. The blue-chip index has declined 10.76 per cent since it hit a year's peak of 14,506.74 points on July 5. Mr Whitworth believed the market would continue to consolidate but forward momentum could be regained by next month. 'A number of external factors have been working on the market - the direction of United States interest rates and people's judgment on how quickly China can recover its growth problems,' Mr Whitworth said. 'The threat of an ill-timed rise in domestic interest rates and doubts about China's ability to stimulate growth look certain to prolong this consolidation phase well into third quarter.' Also stalling the rally was the question mark hanging over the pace of economic recovery in Hong Kong. However, by next month, even the most cynical would not be able to ignore the economic recovery, Mr Whitworth said. Concern over a US-led rise in rates would be short-lived and the mainland's policy activism would begin to pay dividends by the fourth quarter. 'We're effectively arguing for 20 per cent upside following this consolidation phase,' he said. 'I think there's a move to reweighting in a more certain and more predictable Hong Kong market. 'Of the clients who are still underweight in the market, they are becoming increasingly nervous about being underweight in Hong Kong and the realisation that maybe they're focusing on the wrong factors.' He said many European and US funds were still underweight in Hong Kong and the most aggressive views on the market were only 'mildly overweight'. By next month, internal evidence of recovery would look more compelling. Unemployment would be falling, gross domestic product growth back in positive territory for the first time in almost two years and analysts would be upgrading earnings forecasts on improving revenue trends, he said. Mr Whitworth said the earnings recovery story was already becoming clear. 'Obviously banks' [first-half earnings] were quite good . . . I think we've seen some strong evidence in the retail sector. 'That could lead to further upgrades. 'I think these facts suggest that there is increasing evidence that domestic recovery is in training.' Furthermore, the Government's privatisation programme would be gaining momentum, including a timetable for the public offering of the Mass Transit Railway Corp, the probable sale of an interest in the water authority and the contracting out of public housing. 'Market consensus was that the market would peak but now it seems pretty clear that it peaked in May and has fallen in June,' Mr Whitworth said. 'There may be some deterioration in the next month or so [in the Hang Seng Index] but it will be a short-term deterioration.' The ABN Amro view is the next move on US rates will be a case of 'fine-tuning'. Mr Whitworth saw the US interest rate worries dissipating and any downside following the next move would be short-lived. This should be a strong buying opportunity. A 'distinct possibility' would be another rise of 25 basis points, which was largely what global markets were predicting. ABN Amro regional economist Eddie Wong said concerns about deflation and real interest rates in Hong Kong still clouded sentiment. However, he said this was yesterday's news. The headline consumer price index (CPI) figures would head down until the fourth quarter but this partly reflected the laggard effect of falling residential and retail rents, wage cuts and streamlining of the retail sector. The CPI was a lagging indicator, he said. 'Lead indicators, such as residential property prices, retail and residential rents have stabilised,' Mr Wong said. 'In two months' time, people will say, CPI deflation has already seen the bottom.'