LAST week's renminbi depreciation has put the market at a more realistic level, and a lack of news this week is likely to send the Hang Seng Index sideways, brokers say.
The main hopes of recovering last Thursday's losses of more than 160 points were dashed on Friday when Britain and China failed to agree on financing arrangements for the new airport at Chek Lap Kok. With no further talks so far scheduled, brokers say investors are likely to adopt a wait-and-see attitude.
The Hang Seng Index suffered its largest single day drop last Thursday since March 11, falling 166.94 points or 2.2 per cent following a sharp depreciation in the renminbi, after Chinese authorities abolished ceilings on the currency on Beijing's swap market.
The index climbed 2.2 points on Friday, closing at 7,157.49, with brokers saying Thursday's panic was over. ''The sell-off on Thursday was just an excuse anyway because the market was heading for a correction,'' said one analyst.
James Slade, assistant director with Baring Securities, said the devaluation of China's currency had led to a lot of retail investment in the market from Chinese investors trying to avoid losses during the renminbi's decline.
He said if the currency recovered many of these investors could leave the Hongkong market. ''There has been a large retail element in this market and that could dry up,'' he said.