Hong Kong's stock market will stabilize in the second half as oil price is expected to stay below $120 a barrel before November, easing inflation concerns, Fubon Bank's investment specialist said yesterday.

Vicks Poon, the bank's first vice president and head of investment advisory, said the US government will take measures to lower the inflationary pressure and oil prices before the presidential election in November and this will help stabilize the stock market.

Global stocks hit a three-week high on Tuesday as a firmer dollar knocked oil prices lower after the steepest fall in history. US crude is now down more than $20 after hitting a record above $147 a barrel.

"Oil prices will stay below $120 or even weaken to $100 as the US government will try to boost oil supply by negotiating with Middle East countries and by strengthening US dollar through G7," said Poon.

"Meanwhile, the possibility of a substantial raise in Fed rates is not high, but the effectiveness of lowering the rate is doubtful at the same time," Poon added, estimating that US may only increase interest rate in October and tighten liquidity flow into the commodity market.

Expecting the benchmark Hang Seng Index to trade between 21,000 to 25,000 points, Poon believes the Olympic Games will also lower market volatility as it distracts people from investment.

The Hang Seng Index, continuing a surge that started on Tuesday, closed up 2.69 percent at 23,134.551 points yesterday.

If oil prices ease to $80 next year, the risk of global recession in 2009 becomes the key economic challenge as inflationary pressure declines, Poon said.

"There might be more bad news from the US credit crisis next year that may need government action while the US property price will further go down by 20 percent, which will take three to five years to recover," said Poon.

Fubon forecasts GDP growth of the Chinese mainland and Hong Kong will slow down to 10 percent and 5 percent respectively and consumer price index will decline to 7 percent and 4.5 percent.

In the face of global slowdown, the mainland is expected to relax macro-tightening such as raising subsidies to export sector and ease some investment restrictions in order to stabilize the market, Poon said.

However, the possibility of an interest rate hike is not great and the reserve ratio requirement will only be raised for once or twice in the second half, Poon estimates.

"Despite the global slowdown, the mainland is expected to keep the high economic growth above 8 percent as economic fundamentals remain sound with better loan, money and fixed asset investment growth ," Poon added.

(HK Edition 07/24/2008 page3)