The benchmark index trimmed an earlier loss and finished 169.16 points, or 1.12 percent, lower at 14,876.43, leaving a gain of 4.5 percent for the year. It is the third positive year in a row but well below the 13 percent rise in 2004 and the 35 percent jump in 2003.
Investors say they don't expect much better for local stocks in 2006 on concern higher interest rates will slow the economy and hurt the territory's property market.
"Investors squared their positions and took profit on the last day of trading," said Stella Lau, investment manager from East Asia Asset Management. Lau expects the index to hover around the 15,000-point level in 2006 on expectations of slower growth in the local and global economies.
Turnover increased to HK$18.5 billion (US $2.4 billion), compared to HK$17.4 billion on Thursday. "The performance (for the year) was disappointing. The rise far lagged behind other major markets in the region," said Alex Tang, a director from Core Pacific-Yamaichi International. He added that the high number of new listings during the year absorbed liquidity and hampered the wider market's performance.
Tang expects to see the blue chip index to fall to 14,500 points by the end of next year on anticipation of slower earnings growth among the companies.
New listings will continue to be an attraction next year while Chinese enterprise shares will capture most of the attention on hopes of stronger growth in China's economy and in yuan currency, traders said.
Chinese enterprises H-share index ended 12.4 percent higher for the year, but was down 0.15 percent to close at 5,330.34. Tang expects the Chinese index to rise about 9 percent to 5,800 in 2006. Shares of Chinese telecom group China Mobile (Hong Kong) Ltd, the second best performer this year among the blue chip constituents after Lenovo Group Ltd, led the fall, losing 2.7 percent to HK$36.70. The stock has surged 43 percent for the year.
Lenovo, the world's third-largest PC maker, was the star of the year. The company's shares have soared 52.7 percent this year after the company purchased IBM's PC business in April. The shares gained 0.7 percent to HK$3.575 on Friday.
Power companies Hongkong Electric Holdings Ltd fell 0.52 percent to HK$38.40 and CLP Holdings Ltd slipped 0.99 percent to HK$45. After the market closed, the Hong Kong government said it proposed to slash the permitted rate of return on assets for the pair to 7-11 percent after 2008, which would hurt future earnings for the utilities. They can currently charge prices that give them an annual return on assets of up to 15 percent.