Hong KongÆs luck will improve

CLSA''s Capricorn Rising report says Hong Kong will start to emerge from its trough.

CLSA's has released its annual Feng Shui Index for the year of the goat, entitled Capricorn Rising. The report says that Hong Kong will have mixed but improving fortunes, while China will continue to prosper. The West will be less lucky as it enters a period of 20-years where its fortunes will not be as good as before.

The Hong Kong stock market will rise over the first four months of the year of the Goat reaching a high in June. This will be followed by high volatility in August and September with an excess of 800 points in the Hang Seng Index intraday movement. The rest of the year will see some recovery. Kenny Lau, senior research analyst at CLSA, says "The emergence of Water and Earth elements will bring special fortune to the transportation, intermediary agent and Chain theme stocks."

China will enter its eighth lucky period in 2004 and this will last for 20 years and although not yet in this period, China is already feeling the positive forces from it. The report cites the mainland's entry into the WTO and it taking part in the World Cup for the first time. It has secured the next World Expo and is also hosting the 2008 Olympic Games. The report boldly states to "Buy China stocks!!"

For basketball fans the report predict that the first Chinese NBA player, Yao Ming, will lead the Houston Rockets to the final.

All these predictions shouldn't be taken too seriously, says CLSA. This year's report maintains the Hong Kong-based broker's longstanding ‘health warning' to not be a giddy goat and take the FSI too seriously, even if it provides a surprisingly accurate gauge of local sentiment.

On a less jocular note Jim Walker, CLSA's chief economist is bullish on Hong Kong. He forecasts export growth to pick up momentum over the first quarter of 2003 and rise 20% year-on-year. Deflation will fall to average below 2% with no inflationary pressures. Unemployment will shortly fall below 7% and end 2003 at 6% to 6.5%.

He notes that the current pessimism in Hong Kong is the darkness before the dawn and that while monetary deflation is still a problem, Hong Kong banks are ready and willing to lend. He says the local stock market will see lows below 2001-02 but it is unlikely to go below Asian crisis levels. His final prediction is that the Hang Seng Index will return to 12,000 this year.

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