Analysts forecast that a strong euro heralds a new era of opportunity for firms supplying Europe For the past three years, Hong Kong firms have bemoaned the strong US dollar. But with the United States currency on the slide, export stocks with strong exposure to Europe are now the best way to play the market, analysts say. And they see the increased earnings for Hong Kong exporters from a weakening currency as having a knock-on effect to other sectors in the economy. For years US buyers have been viewed as consumers of last resort, but with the euro near a 41/2-year high of 1.16 against the US dollar, European households are seen as natural buyers of Asian produce. 'Hong Kong and other Asian exporters could benefit by exporting more to European markets in the future, but will not benefit directly in the near term,' said Adrian Mowat, regional strategist at JP Morgan. Mr Mowat expects exports to Europe to rise, a reversal from last year when the still-buoyant US consumer market offered the highest growth. Tung Tai Securities associate director Kenny Tang Sing-hing said fashion retailer Esprit Holdings, electronic products manufacturer IDT International and eyewear maker Moulin International would be the key beneficiaries. Last year, Esprit derived 80 per cent of its operating earnings from European markets, while IDT received more than 50 per cent and Moulin 56 per cent from Europe. Fundamentally, these companies look healthy with slight net profit growth and have outperformed the Hang Seng Index. While the Hang Seng Index has tumbled 22.28 per cent over the past 12 months to close at 9,119.04 yesterday, Esprit has risen 2.06 per cent to HK$14.85, IDT soared 8.33 per cent to 78 cents and Moulin is up 5.8 per cent to $3.65. And according to market watchers, this trend is set to continue, with exporters likely to be the main beneficiaries. 'The US dollar weakness will continue for a while ... perhaps till the end of this year or next,' said William Belchere, the director of Asia-Pacific Economic and Policy research at JP Morgan Chase Bank. And the companies making gains from a weak dollar against a strong euro would not be limited to exporters, analysts said. Merrill Lynch's head of Hong Kong and China research, Henry Ho, said shifting currency values would be felt in stocks such as banking giant HSBC Holdings as it had a strong exposure to European markets. He said HSBC's greatest business concentration was in Britain and Europe and European business accounted for 43.1 per cent of the bank's total before-tax profits last year. Mr Ho said the bank would benefit significantly from a strong euro. During the past year, HSBC tumbled 8.05 per cent and it closed at $88.50 yesterday, against the slump in the Hang Seng Index over the year. Some analysts also see a weaker dollar as a potential saviour for the local property market. They argue that due to Hong Kong's pegged currency system, deep-set deflationary expectations could switch towards an inflationary bias if the currency weakening continues. The view is not universal and Phillip Securities' head of research, Louis Wong Wai-kit, said imported deflation, rather than inflation, would remain the dominant theme as low-cost China remained Hong Kong's biggest trading partner. Baring Asset Management (Asia)'s investment manager, Lilian Co, said she preferred to play the weaker dollar through the export sector. 'To be honest, with a weaker Hong Kong dollar I am more positive on exporters and industrial stocks,' she said. Ms Co said she was overweight on consumer and industrial sectors and underweight on blue chips and property stocks.