Hong Kong's Hang Seng Index May Reach 36,000, Merrill Says

Hong Kong's benchmark Hang Seng Index may reach 36,000 next year, more than a fifth higher than its current level, and investors should buy the city's equities because of robust fund inflows, strong economic growth and solid company earnings, Merrill Lynch & Co. said.

The Hang Seng is valued at 21 times estimated earnings, higher than the Morgan Stanley Capital International Asia- Pacific Index's 18 times. A level of 36,000 would be 22 percent higher than today's close of 29,438.13.

``The Hang Seng Index is not inexpensive at its current level, but we see any correction as a good buying opportunity,'' strategists at Merrill Lynch including Willie Chan said in a research note released today. The brokerage has an ``overweight'' rating on Hong Kong shares, meaning investors should hold more of the stocks than their representation in the regional benchmark.

The Hang Seng's 44 percent gain and the Hang Seng China Enterprises Index's 68 percent advance since the start of trading on Aug. 20, when China announced a plan to allow mainland individual investors to buy Hong Kong stocks, have made them the best performers among 90 global benchmarks tracked by Bloomberg.

The Hang Seng plunged 5 percent yesterday, the most since the Sept. 11, 2001, terrorist attacks, after Chinese Premier Wen Jiabao said his government may delay the plan.

Merrill, the world's biggest brokerage, forecast a 50 percent increase in the city's residential prices by 2009 and said Henderson Land Development Co. is among its most preferred Hong Kong stocks.

Li & Fung Ltd., Standard Chartered Plc, Hopewell Holdings Ltd. and Pacific Basin Shipping Ltd. are also the brokerage's top picks, according to the research note.
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