The benchmark Hang Seng Index (HSI) could easily vault over 20,500 points in early 2007 and advance towards a higher level, according to 12 analysts surveyed in December. The index closed at 19,964.72 points on December 29, the last trading day of 2006.

All of the analysts one independent and 11 from different securities houses and investment banks in Hong Kong firmly believe that the bullishness of the Hong Kong market has not yet come to an end, although the market has been rising for three years after recovering from a big setback in 2001-03 due to a combination of factors including the SARS outbreak.

How high the HSI

But the analysts' predictions vary in terms of how high the HSI could reach in the year to come between 21,000 and 23,000. Calculating the median of their projections, the figure comes to 21,700. "The mainland will continue to be the major booster of the local market," says Tung Sing-hing from Tung Tai Securities.

The Hong Kong market has been benefiting from the robust mainland economy and a huge influx of mainland listings since 2003.

More than 30 percent of Hong Kong's 1,100 listed companies are from the mainland, weighting more than 40 percent of the whole market capitalization. The situation prompts local and international investors to use Hong Kong as a proxy to gain from the mainland's rapid-growing economy. "So long as the mainland does well, Hong Kong will shine," says Tung.

The renminbi story, too, will continue to spur the Hong Kong market in 2007. In 2006, international funds headed to Hong Kong to bet on the further appreciation of the renminbi, which helped push up shares. "Such a scenario will continue in 2007," says Ricky Tam, chairman of the Hong Kong Institution of Investors.

Analysts say the yuan is still undervalued, although it has risen by more than 3 percent since its latest appreciation in July 2005. Some believe the currency will climb by another 5 to 8 percent in 2007, which will help maintain a rich liquidity and send shares higher.

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