HONG KONG: Hong Kong will record substantial growth in its equity and property markets in the coming year helped by its role as mainland's offshore financial center, investment bank BNP Paribas said yesterday.

"In the next few years, Hong Kong will have a big boom in our view. We are very bullish on Hong Kong because it is a natural offshore (financial) market for China," said Erwin Sanft, head of regional equities research at BNP Paribas Securities (Asia) Ltd.

Loose monetary policies and huge influx of liquidity from outside of Hong Kong will send the city's benchmark to 30,000 points again next year, he added.

Hong Kong property prices will climb 30 percent to 40 percent in the next 18 months, according to the French bank.

Optimism about these markets seems well-founded. As of yesterday, Hong Kong stocks have increased 91 percent from early March this year. The Hang Seng Index topped 30,000 points in October 2007 but was trapped in a downhill trend after that; it dropped to below 12,000 points on March 2 this year as worries on a prolonged economic recession drove panic investors hastily dumping their holdings.

The index advanced 1.41 percent, or 315.55 points, to close at 22,771.39 points yesterday, representing a 91 percent jump from an 11,921.52-point close on March 2.

As for money markets, BNP Paribas thinks Hong Kong's role as the largest offshore renminbi business center is contributing to the city's growth.

"Hong Kong is the center for the first phase of renminbi internationalization. With the expected global trade recovery in 2010, we expect the yuan trade finance business to take off, and some US dollar trade settlement will switch to yuan settlement," BNP Paribas said in a research note.

Full renminbi convertibility will pose a great challenge to Hong Kong, as it will allow Shanghai to take over as the country's financial center, but that will not appear on Hong Kong's horizon in the next five years, the note reported.

Despite the good news, some economists warned that strong evidence of recovery is yet to seen.

"While the good news has come earlier than expected, the outlook remains patchy, as no signs of a strong recovery in the US and European consumer demand have been evident," said Irina Fan, a senior economist Hang Seng Bank.

"Liquidity is likely to remain high for an extended period. The risk of skyrocketing asset prices is likely to constitute the most important macroeconomic challenge faced by some of the Asian economies," she said.

(HK Edition 11/24/2009 page4)