It was a case of one hop forward, two hops back on the first trading day in the Year of the Rabbit. The benchmark Hang Seng Index yesterday opened with a leap of 73 points to 23,982, but then went into reverse, slumping 355.57 points or 1.5 per cent to close at 23,553.59. It was the biggest drop on the first trading day of the lunar new year since 2008. The H-share index recorded an even sharper drop of 2 per cent, settling 256.82 points lower at 12,454.07. Brokers and strategists say the stock market will pick up in the second half of the year. They predict capital flows into Europe and the United States, reflecting expectations of a sustainable US and European economic recovery, and also underscoring concerns over inflation and tighter monetary policies in emerging markets, particularly China. 'Companies which have significant exposure to the Europe and US markets should perform better in the first half of 2011,' said Ben Kwong Man-bun, the chief operating officer of securities firm KGI Asia, citing HSBC Holdings and Esprit Holdings as examples. However, Kwong said H shares would only improve in the second half, and mainland banking, commodity and property stocks would remain under pressure for the moment because of concerns about inflation and tightening monetary policy. Industrial and Commercial Bank of China fell 1.7 per cent to HK$5.78 and China Construction Bank Corp retreated 1.6 per cent to HK$6.79. PetroChina, the mainland's biggest oil producer, dropped 3.6 per cent to HK$10.76. CNOOC, the largest offshore oil producer, declined 2.9 per cent to HK$17.26. Kwong predicted the Hang Seng Index would move between the 22,000 and 27,000-point levels this year. Sun Hung Kai Financial analyst Daniel So said market sentiment was especially vulnerable to government measures to cool the mainland property sector - marked by the recent scrapping of preferential mortgage rates for first-time property buyers in Shenzhen. The market is also nervous before consumer price index data due out this month. But So said investors should consider buying H shares, which could improve in the second half, when mainland inflation was expected to ease. VC Brokerage director Louis Tse Ming-kwong advised investors to watch international politics and government policies. The crisis in Egypt, for example, could hurt energy supplies, which could be bullish for energy stocks in the long run. Tse said companies covered by Beijing's latest economic blueprint - heavy machinery production, rare earths and timber - should do well.