The Hong Kong market has been affected by sentiment indicators but is fundamentally strong, according to Chung Man Wing, director of HSBC Asset Management Hong Kong, which manages part of the pension investments for HSBC’s em-ployees in Hong Kong and elsewhere.

In the very near term, worries about the local property market will also have an impact.

Chung continues: “Our view is that we are going to see higher interests rates in the US, but that we are not going to see a repetition of 1994,” where a series of increases, leading to market value being destroyed. He predicts two more hikes comprising a rise of about 50 basis points, in keeping with market thinking.

He says that the impact should be limited and just such a situation has already been anticipated. Locally there are also concerns about the property market. Chung sets this in context by saying that for the first two months of this year average Hong Kong property prices went up by 20% sparking fears of overheating. The government was prompted to make some tough statements about the market.

Commenting on the resulting consolidation, he says: “It is a natural thing, which can only be healthy for the long term development of the property market,” adding that before a clear picture emerges the market will probably move sideways.

He is more optimistic for the second half of the year, when the interest rate position will be clearer and the property market will have consolidated as Hong Kong and China enter a period of economic recovery.

He says: “We think that given the healthy economic earnings growth, the Hong Kong equity market should resume its upward trend in the second half of the year.”

In terms of stock selection he says that HSBC Asset Management will be focusing on conglomerates particularly those with links to China and some of the banks.

In terms of the transition, he says that the closer to the handover date, the less uncertainty there is.

“If it has any impact, it will make overseas investors more aware of the fact that the improving Chinese economy can only be positive for Hong Kong, because of increasing integration,” he adds.

Assessing the importance of local institutional money, he says: “Local institutional funds are still not very significant, relative to overseas investment. The market has by and large been institutionalised but the role of overseas investors has been very large in this.

“You should also bear in mind that we are going to see a mandatory pension fund scheme, starting late this year or beginning of next year, so local institutional participation will increase,” he says.