HK and mainland economies to see slower growth while inflation rises

Inflation will rise in Hong Kong and on the mainland, while growth in both economies and their equity markets will slow, according to two forecasts yesterday from major financial institutions.

Sun Hung Kai Financial said the Hang Seng Index would see only moderate growth of 10 per cent this year and the H-share index 26 per cent because companies would earn less from investments and were facing slower global economic growth and higher operating costs.

Last year, the Hang Seng rose 39.31 per cent, while the H-share index jumped 55.94 per cent. The brokerage lowered its fair-value estimate for the Hang Seng to 23,500 points from 25,500 early this year.

Sun Hung Kai head of research Alvin Chong said: 'Equity indices will remain volatile and directionless for most of this year. Interest rates are heading higher, the economy and corporate earnings growth are heading lower, and earnings visibility is poorer due to inflation brought by higher energy and commodity prices.'

Meanwhile, Citibank said the mainland's gross domestic product would grow 9.8 per cent, down 2.1 percentage points from last year. It estimated GDP growth for Hong Kong at 5 per cent, down 1.3 percentage points on the year.

Citibank forecast the nation's inflation rate at 7.4 per cent by year-end, compared with 4.8 per cent last year.