Continued volatility is expected for the Hong Kong market due to the unresolved sub-prime problem and high oil prices, according to Securities & Futures Commission's latest market review.

The performance of local shares may also be affected by the performance of regional stock markets - notably the Mainland - and movements in the currency markets.

The half-yearly market review published today said Hong Kong's stock market turnover shrank in the first half of this year during a global correction, but participation by different groups of investors remained little changed from the second half of last year. The share of trading activity by institutional brokers rose slightly, to 67% from 65%, while that of retail brokers dropped, to 33% from 35%.

The market share of short-selling activities rose relative to the reduced market turnover, but the commission found no irregularities. At a daily average of $6.48 billion, short selling contributed to 7.4% of total market turnover in the first half of the year, compared to $7.64 billion or 6.6% in the second half of last year.

"Despite the weak market performance during the period, operations of the Hong Kong securities and futures market were largely smooth. Systemic risk of the local market also remained limited, but the commission will continue monitor the market's development closely," the commission's Chief Executive Officer Martin Wheatley said.

In the first half of this year, the Hang Seng Index fell 21% and the Hang Seng China Enterprises Index lost 26% following the weak performance of the US and Mainland markets. This was attributable largely to the lingering sub-prime problem, high oil prices and worries over the Mainland's monetary tightening measures.