A post-results surge in HSBC's share price in overnight trade in London ran out of steam on the Hong Kong market yesterday. Reacting to news of a forecast-beating 55 per cent jump in net earnings to US$6.35 billion on Monday, investors chased HSBC shares 3.21 per cent higher to close at 833.5 pence (HK$119.040). On the Hong Kong market yesterday, however, the share price simply adjusted to the new level set in London, ending up just HK$3 at $118. The end to the rally came despite a number of bullish research reports released after the results. Richard Staite, SG Securities' bank analyst, raised his full-year earnings estimate by 9 per cent to US$1.31 per share, saying the 3 per cent boost to the share price on Monday had not fully captured the positive surprises in the interim results. 'We expect consensus estimates to rise sharply and the share price to further outperform in the coming weeks,' he advised clients in a post-results briefing. 'Second-half results were likely to show the benefits of a rising interest-rate environment, a pick-up in investment-banking revenue following recent staff increases, and a further reduction in the group cost-income ratio,' he said. Core Pacific Yamaichi analyst Bonnie Lai raised her full-year earnings forecasts for this year and next by 14.6 per cent and 8.3 per cent respectively, to US$12.3 billion and US$12.89 billion. She raised her 12-month forecast for HSBC's share price by 21.7 per cent to HK$140. Grant Chan of BOC International said HSBC's 16 per cent return on equity justified a higher price-to-book valuation. 'HSBC is currently trading at 13 times 2004 and 2005 earnings. Meanwhile, on a book basis, it is trading at two times, while generating a decent ROE of 16 per cent,' he said. 'This level of profitability deserves a multiple of 2.3 times book, or a share price target of HK$130.' Keith Irving of Merrill Lynch said he would raise his earnings forecast by 12 per cent and expected the group to post net profit of US$13.7 billion this year. But HSBC shares 'did not look inexpensive', he cautioned, compared with many European banks or global rival Citigroup, which was trading at 10.7 times this year's earnings.