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SCMP Reporter

HONG KONG brokers remain optimistic about the performance of share prices this year despite rising interest rates and continuing uncertainty over renewal of China's most favoured nation (MFN) status.

  A survey of brokerages by Sunday Money has found a majority of securities houses have trimmed their year-end Hang Seng Index forecasts, although they expect stock prices will improve from current levels.

  Standard Chartered Securities is the most bullish, with a year-end prediction for the HSI of between 13,500 and 15,000, while Regent Financial Services are bears at just 6,000 points.

  Most see buying opportunities at existing levels but urge small investors to remain cautious through selective stock picking.

  ''Most of the bad news has already been recognised and discounted by the market,'' said Standard Chartered's research head, Eugene Law.

  Peregrine's forecast for the index has not changed from the 13,000 it tipped at the beginning of the year.

  Behind the long-term optimism, Peregrine cites the fact that the index is currently trading at a prospective price-earnings multiple of only 12.5 and this is expected to fall to 10.5 in 1995, making Hong Kong one of the cheapest markets in the world, if not the cheapest.

  ''We forecast EPS [earnings per share] growth of 21.8 per cent in 1994 and 18.8 per cent in 1995,'' research head Ravi Narain said.

  Peregrine's forecast is based on 21.8 per cent earnings growth and a marginal re-rating of the market in the second half of the year as MFN and property-related concerns subside.

  In addition to this, Mr Narain said Hong Kong was the only play on Guangdong province, the fastest-growing area in the world.

  ''Many of the perceived risks for the market have been exaggerated, and MFN will not be revoked,'' he said.

  ''While interest rates are on an upward path, these concerns have been overdone with inflation in the US apparently under control.''   G. K. Goh has revised its beginning of the year forecast from 13,500 to 12,200, partly because of concerns US interest rate rises will adversely affect the flow of money into Hong Kong.

  The only broker to increase its forecast since the beginning of the year is Schroder Securities, which has a current year-end estimate of 10,800 compared to its earlier forecast of 10,600.

  Jardine Fleming research head Alex Ho believed the index would finish at about 8,500 by the end of the year but could move higher in the interim if US markets remained stable.

  ''On a nine-month view, we believe the risks of investing in Hong Kong and elsewhere will rise, hence our expectations that the HSI will recede sometime during the second half of the year,'' he said.

  Regent's negative outlook for Hong Kong does not end at its low index forecast, which is about half that made by other brokers. According to the investment house, the current market level does not represent a good buying opportunity and small investors should not enter the Hong Kong market this year.

  Other brokers gave more optimistic views but tempered their recommendations with caution.

  Dao Heng Securities research manager Dr Mark Gallagher said diversification was the key for small investors and the selection process should be guided by personal preference for risk as well as the balance between income and capital growth.

  ''We advise caution in this trading market and suggest blue-chip investments,'' Dr Gallagher said.

  Blue-chip investments are also favoured by Standard Chartered Securities and Peregrine, with the added warning to be selective about IPOs (Initial Public Offerings) given the poor quality of a number of recent issues.



Brokers stay upbeat in face of rising odds