The share prices of technology red chips Legend Holdings and Founder (Hong Kong) are expected to consolidate after demonstrating some of the best performances among China plays in the past two months.
Legend, which makes personal computers, closed last Friday at HK$18.70, giving investors who have been holding the stock for the past two months a return of 159.72 per cent, while publishing industry software developer Founder has risen 138.1 per cent to HK$6.25 since October 11.
Their gains were bolstered by news in mid-October of the mainland's impending entry into the World Trade Organisation, which paved the way for import tariffs of semiconductor components to decline and an opening up of the mainland Internet sector to foreign investment.
'I think [Legend] will probably consolidate for a while. I would not be surprised if it takes a breather at current levels,' said Douglas Lee, executive director of equities research at Goldman Sachs (Asia).
'Its price-earnings ratio is already very high. I think it has reflected investors' expectations on the future earnings potential of its Internet-related business,' BNP Prime Peregrine analyst Marvin Lo said.
Last month, Legend launched personal computers that allow users to be connected to the Internet with just one touch of a button, and has made an agreement with China Telecom to provide one-year free unlimited Internet dial-up service to lure computer buyers.