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Index unaffected by talks

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THE stock market is once again having to focus on political issues. But, with Sino-British relations apparently heading for another low, there is little to encourage the market.

It has been widely suggested that the Sino-British talks are on the verge of collapse, but whether or not this is a negotiating ploy remains to be seen. The question for the market is whether it matters if the talks do collapse.

From the relatively narrow perspective of the stock market, the answer must be: Not a great deal. If the prospect of China's takeover of Hong Kong posed such a threat to life as we now know it, the Hang Seng Index would not be at its present giddying heights.

The experience of the past year suggests that, when the index drops, this is viewed as a buying opportunity, particularly by US investors who are becoming increasingly interested in the world's biggest emerging market.

So, although the apparent deterioration in the political climate may cast a shadow over the market's near-term prospects, we feel that the downside for the market, as far as politics is concerned, is limited to a few hundred points.

At the same time, the stock market is benefitting from local negative interest rates and the flow of funds that has been generated in the industrialised countries by the combination of expansionary monetary policies together with their respective sluggish economic environments.

But we think another reason to be bullish on the Hong Kong market relates to its P/E (price earnings) ratio relative to other Asian markets.

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