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SCMP Reporter

IN the wake of last week's record-setting rally, some brokers believe the Hang Seng Index could continue its climb if investors interpret positive statements by Chinese officials as an indication that Sino-British's talks this weekend could produce progress.

  The leading sign that investors were still bullish about the market was the May index futures closing at 7,080 points, representing a 74.71-point premium to the cash market.

  Investors were also buoyed by rumours that the Sino-British Joint Liaison Group would meet to discuss financing for Chek Lap Kok airport.

  ''We expect the index to make a new high on Monday if no bad news comes out over the weekend,'' a report by Swiss Bank Corp said after the market closed on Friday.

  The report said the bullish sentiment was supported by the large premium for May Hang Seng Index futures and the June SIMEX Morgan Stanley Capital Index Hongkong futures.

  Barings Securities director James Osborn said the index would probably get off to a slow start this week but go higher provided investors did not get too scared by the Chinese economy.

  Brokers said they were encouraged by the recent string of good news from Chinese officials.

  These included a statement by Mr Lu Ping, director of the Hongkong and Macau Affairs Office, that the index could hit 8,000 points if the Sino-British talks were successful, speculation that the airport project financing would go ahead, and last week's agreement by the Sino-British Land Commission about land sales in Hongkong.

  This trend should continue, they said, because China did not want to rock the boat and give the US administration another excuse to attack Beijing with its Most-Favoured Nation trade status still unclear.

  Dao Heng Securities research director Alex Tang said the index's 103.47 decline on Friday was inevitable because the gap between the Hang Seng Index and 250-day moving average had reached 19 per cent.

  ''To those who bought stocks over the past year, they took [Friday's] index as an indication to take profits,'' he said. ''That is why the market was over-extended and a correction was imminent.''    However, Mr Tang said he was concerned about a number of negative factors, including problems with China's economy, higher gold prices, a decline on the New York Stock Exchange, rising inflation in the United States and the perceived US decision to attach conditions to China's MFN status.

  As a result, he expected the index to stall with investors taking a wait-and-see approach before the third round of Sino-British talks from May 21 to 23 in Beijing.

  ''I'm still optimistic about Sino-British talks but we have to be cautious when the market jumps too high, too fast,'' he said.

  The Sino-British Land Commission agreement helped the property sector post the highest jump last week, 5.43 per cent.

  Henderson Land was up 12.37 per cent on rumours it was going to spin off its Chinese property division while Hongkong Land gained 11.76 per cent on speculation it had sold Exchange Square III.

  The apparent thaw in Sino-British political relations helped Jardine Strategic climb 8.93 per cent and Jardine Matheson 3.85 per cent.

  The worst performer in the midst of last week's rally was HAECO, which fell 3.91 per cent. Hongkong and Shanghai Hotels was down 2.68 per cent while Hutchison Whampoa fell 1.96 per cent after a healthy run.



Record-setting rally tipped to resume ahead of talks