Hong Kong stocks are expected to open higher today, the first trading day of the Year of the Pig, spurred by the Lunar New Year effect and strong overseas markets.
'The probability of the Hang Seng Index opening higher is strong, given ample liquidity in the market and the encouraging performances of the United States and Japanese stock markets,' said Michael Wong, a research director at Hantec Investment International.
However, Mr Wong cautioned that local gains could evaporate if the Bank of Japan raised interest rates today. Borrowing at Japan's ultra-low interest rates and then investing the funds in hot markets such as Hong Kong has become a favourite investor tactic. Analysts predict the Japanese market is pricing in a 60 per cent chance of a rate increase.
Japan's Nikkei-225 Index neared seven-year highs on Monday but stalled yesterday as investors pondered the likelihood of a rate rise.
The Dow Jones Industrial Average gained 1.5 per cent last week, thanks to growing expectations that the Federal Reserve will cut US interest rates later this year.
Macquarie Securities said that based on 30 years of statistics, there is a better than 70 per cent chance of reaping a gain.