US factor

But a possible slowdown in the US economy would also hit Hong Kong. "It's not that good in the United States," says Ronald Wan from Bank of Communications Securities.

Most analysts predict a slowdown in the US economy, saying its weak housing market is an indicator. "As an international and open market, Hong Kong will certainly feel the pinch," Wan says.

The United States is Hong Kong's largest export market after the mainland, and Hong Kong usually follows the US interest rate moves to maintain its currency peg to the greenback.

To predict the Hong Kong market, analysts always look for hints from the mainland and the United States. "Now it seems that the mainland will do well but we're not so optimistic about the United States. "The question is which will prevail," says Tung.

All analysts surveyed believe the mainland factor would dominate the market, at least that would be the case in the first few months. "The market is healthy and not overbought," says Lai Wai-shing, an independent analyst. "It won't receive big corrections until it reaches 21,000."

What to buy and sell

Picking their favorite categories of stocks, all of the surveyed analysts put a "buy" recommendation on mainland financials, saying they would rise further thanks to the opening of the mainland's banking sector under World Trade Organization (WTO) commitments and a rapidly-growing economy.

China Life Insurance and China Merchants Bank won the most votes (nine) from the 12 analysts, with the Industrial and Commercial Bank of China (ICBC), which some predict has a chance to join HIS, following with eight naming it.

Mainland property developers, too, will hog the spotlight in 2007, as the speculation of the yuan will continue to attract international funds to these stocks. Property plays have long been regarded as a proxy to gain from the appreciation of the yuan.

Shanghai-based high-end developer Shimao Property and Guangzhou-based R&F Properties were rated a "buy" by nine analysts. Hong Kong-based developers will also advance as the local housing market will benefit from the US credit-loosening circle that is expected to start in the first quarter of 2007. Sun Hung Kai Properties and Cheung Kong Holdings are believed to outperform the broad market.

As for stocks to sell, analysts say resources stocks, which had risen sharply in 2006, may lose momentum because gold and copper prices have shown signs of dropping in 2007. "I think it's time to dump resources," says Ricky Cheung, vice-president of Enlighten Securities and Futures.

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