Equity markets in Hong Kong and the region have already staged late-year rallies, but they have more room to run next year given strong domestic demand and economic fundamentals, JP Morgan said yesterday. 'Valuations [are] perfectly acceptable and I have reasonably optimistic expectations about growth,' said Adrian Mowat, chief Asian and emerging market equity strategist at JP Morgan. 'So I don't think the low- hanging fruit is all gone.' He said the Hang Seng Index may finish 2011 at 28,000 points, up nearly 20 per cent from yesterday's close at 23,605.71. He expects that by that time, South Korea's benchmark will close at 2,300 and Australia's will hit 5,000. Stock indices from Australia to Argentina have surged amid signs of stabilisation in the global economy and another round of quantitative easing in the United States. Investors have scrambled to join the rebound, pumping fresh waves of money into the market. The Hang Seng Index has jumped 15 per cent since the start of September. Daily trading turnover has topped HK$100 billion 17 times over that span, compared with just once in the first eight months. But the rally has shown signs of a slowdown. The index fell 2.6 per cent this week, dropping for the fourth week in the past five. Mowat said the Hong Kong and mainland markets could be volatile next year as investors take stock of potential policy responses to trends like inflation and property sales. He cited long-term upside in the mainland-related consumer discretionary and consumer staple sectors, despite a run-up already this year. 'Consumption is the theme that you really must focus your investment ideas on for the next decade,' he said. 'This is one of the biggest growth stories out there, but there is a scarcity value.' He said he was willing to pay above 30 times earnings for consumption-related mainland stocks. That is double the current valuation of the Hang Seng Index, which trades at around 14.6 times earnings, according to Bloomberg data. The Shanghai Composite Index, meanwhile, trades around 18.5 times earnings. Rising valuations in both markets could give investors pause before loading up on more stocks. Daiwa Capital Markets forecast this week that mainland stocks would record double-digit returns in the next six months but that valuations may have already hit a ceiling. 'The decline in the market's trailing price-to-earnings ratio since mid-2010 appears to be warning of an imminent slowdown in market earnings growth,' said Colin Bradbury, regional chief strategist at Daiwa Capital Markets.