JARDINE Fleming is bucking the prevailing bullish sentiment, telling investors the economic cycle is moving decidedly against Hong Kong equities. A draft copy of Jardine Fleming's first major strategy piece since Alex Ho left as head of research was obtained by Business Post yesterday. The report is due to be released to investors today. Rumours the report was about to be circulated were partly responsible for yesterday's 93.54 point loss in the Hang Seng Index, to 9,524.54. The research paper, titled Running on Empty , said the bullish predictions of a run-up to the 11,000-to-12,000 level rested on anticipation of a market re-rating. ''Don't hold your breath. The market's engine is running out of fuel,'' said the report. It said that as the market approached the top end of its recent trading range, the assumption Hong Kong was moving into another up-leg in a secular bull market seemed to be consensus. ''We are less convinced that it is back to 'business as usual' for the Hong Kong market, not because of a perverse desire to take a contrarian position but because we perceive the environment has changed significantly since the end of 1993 when Hong Kong peaked at record levels,'' said the report. ''We are not aggressively bearish . . . however, we consider the upside from these levels is severely limited'', therefore any move towards the 10,000 level should be used as an opportunity to reduce holdings in Hong Kong stocks. The report argued that rising interest rates, slowing earnings growth and a loss of momentum in the property market made a price-earnings expansion unlikely. A key factor is the easing of the economies of China and Hong Kong, making an earnings slowdown in the territory unavoidable. ''Corporate earnings growth is slowing and the possibility of earnings disappointments is increasing,'' said the report. Jardine said the capital inflows which boosted the market last year had peaked and would not provide sufficient fuel for a re-rating. ''Rising interest rates from the United States mean the flows of last year from that source will not be repeated. Liquidity will remain tight for another 12 months.'' The report concluded that those who talked of index levels of 12,000 were implicitly forecasting at least a partial re-rating that took the market to record highs at the end of 1993. The rationale is that since market earnings growth forecasts do not seem to vary greatly, further strong upward moves in the index can come only on the back of expanded price-earnings ratios. ''The core of our argument is that the preconditions for such a re-rating have been significantly undermined over recent months. Hence the upside for the market looks to be very limited from current levels.''