Halbis sees China stocks fall post-Olympics

LONDON (Reuters) - Chinese stocks will see further volatility this year with a sharp fall likely after the Olympics in August but their long-term prospects remain intact on rising domestic consumption and continued infrastructure investment, said a fund manager for HSBC's asset management arm.

"There are a large number of people expecting a severe correction after the Olympic Games. I think if the market believes it, it will happen, although we don't think it is a necessarily a true reflection (of business conditions)," Richard Wong, equities investment director for Halbis, told Reuters.

Wong, who manages about $6 billion (3 billion pounds) in mostly Hong Kong-listed China assets via Halbis' China equities fund and the China portion of its BRIC fund, said Chinese stocks would recover towards the end of the year as food prices ease and higher fuel prices are absorbed by domestic companies.

"(Higher food and oil prices) are not going to derail China's growth. Consumption and investment will still be the key drivers for China's economic growth."

Among the four major emerging markets of Brazil, Russia, India and China (BRIC), China has been among the worst performing so far this year.

Rising wages coupled with higher fuel and food prices are seen eroding the profitability of Chinese manufacturers, already facing with the prospect of weaker export demand from major Western markets such as the U.S.

Mainland-listed shares .SSEC have fallen 46 percent since the start of the year, twice the 23 percent decline suffered by Chinese companies listed in Hong Kong .HSCE.

Halbis' China fund, which gained 60 percent in value last year, is about 25 percent down so far in 2008 but Wong expects some recovery by December.

"At this point, we think valuations are starting to emerge. We're expecting to see 30 percent average earnings growth on Hong Kong-listed Chinese companies this," Wong said, adding that profits would also be boosted when corporate tax reforms take effect this year.