The record-breaking oil price is said to send the Hong Kong stocks down further.

Alex Poon, vice-president of ADMIS Hong Kong, sees the oil price as bubble, saying "the oil prices' climbing has shrugged off the fundamental demand."

The US crude oil rose above $135 per barrel in its early trading in London yesterday, setting a new record.

"I am uncomfortable with the historical high of the oil prices," said Poon, "but the upward trend may continue in the short term." He expects the oil price to test $138.8 level per barrel.

Investors should be cautious that the oil prices may plunge suddenly and sharply after such a "sharp" surge, Poon warned. "I am not surprised that the oil price will come down $10 per barrel in a day when the bubble bursts, but it will find support at $120 level."

He added that if the oil prices keep rising, it will affect the corporate earnings on rising costs.

Hong Kong stocks tumbled yesterday. The benchmark Hang Seng Index (HSI) lost 1.64 percent or 417.17 points to close at 25,043.12 after hitting a day's low of 24,700.49. Aviation and shipping firms fell after oil prices hit a new high, and Sinopec and PetroChina slid after Beijing denied a deregulation of oil product prices.

"Corrections will continue in Hong Kong's stock market in short term as oil price is expected to set new high in short term," said Linus Yip, a strategist at First Shanghai Securities. He expects the HSI will find support at 24,600 points in the latest correction.

"However, the market is expected to be more stable when oil price will fall sharply after the peak," Yip added. "Whether the market will rebound depends on funds flow as the turnover in May is the lowest this year so far."

Yip said investors may speculate on the theme of a coming oil peak, which will benefit airlines and oil refinery stocks in short term. But it is not yet the time for "buy" and "hold" in general.

Louis Tse, managing director of VC Brokerage, also expects the market to have downward pressure until the future expiry date next week. Yet, he believes oil price is expected to peak very soon and the index is likely to stay around 24,800 points afterwards.

He advised investors to stay "put" in short term, saying that they may buy mainland telecom stocks such as China Telecom and China Telecom when they fall to a reasonable level.

(HK Edition 05/23/2008 page3)