As the Hang Seng Index continues its bumpy ride into the fourth quarter, oil prices have been identified as the primary concern facing the global market. The news comes amid mounting concerns oil prices will remain high during the winter due to increasing demand. In a study by Pegasus Fund Managers for Sunday Money, 16 Hong Kong fund managers were asked their views about the fourth-quarter global investment environment. Of the potential risks identified, oil prices ranked top, with 30 per cent of respondents believing prices would continue to dominate the market into the new year. This comes in direct contrast to the recent drop in oil prices resulting from the United States Government's decision to release 30 million barrels of oil from the country's strategic petroleum reserve. A similar release of six million barrels of heating oil by Japanese firms is expected to drag crude prices down further. In any case, the fund houses surveyed had a surprisingly bullish view of the domestic market, predicting a year end surge to take the Hang Seng Index up to the 18,000-20,000 range. This forecast reflected the relatively minor effect that inflated oil prices were expected to have on Hong Kong's economy. Lawrence Chen, assistant research manager of Pegasus Fund Managers, said high oil prices would not affect Hong Kong unduly. 'Hong Kong is relatively less influenced by high energy prices. Compared to Europe and the US, oil prices have a more marginal effect in Hong Kong on petroleum prices,' Mr Chen said. This is in stark contrast to the effect the oil crises of the early and late 1970s and 1990 had on Hong Kong. 'In Kwai Chung or Kwun Tong you don't see as much industrial use of oil as you did 10 to 15 years ago,' he said. With the amount spent on oil as a percentage of Hong Kong's gross domestic product (GDP) falling, Mr Chen said the Hang Seng Index had a sizeable buffer against the worst effects of spiralling oil prices. His comments echoed those of Financial Secretary Donald Tsang Yam-kuen, who recently insisted Hong Kong had weaned itself off heavy oil consumption. The Pegasus study also revealed concerns about interest rate increases were less pronounced than previously. Instead, the possibility of US dollar depreciation and an increasing trade deficit appeared to pose a substantial risk to the global economy. The concern was that a significant imbalance in global demand could disrupt growth. Other potential risks were weaker than expected corporate earnings and the weak euro. Concerns on earnings were particularly prescient, coming in a week which saw both Apple Computer and Dell Computer Corp suffer major losses on profit warnings. Among stocks, the majority of respondents favoured technology, media and telecommunications, despite recent fears about these sectors. This reinforced recent analyst reports from the US that technology stocks were still considered high-growth sectors. Banking and financial sectors were expected to perform well because of the decreasing likelihood of a further interest rate rise. China's accession to the World Trade Organisation, according to respondents, stimulate the market, with aviation and transport sectors set to benefit the most.
