The Hong Kong government may be increasingly worried about hot money pouring into the city, but stock market participants are playing it cool.
The reason could be that they have not seen much of that hot money flowing into the stock market yet, unlike the inflows that followed previous rounds of US monetary policy loosening known as quantitative easing.
But the expectation is that it is just a matter of time until it does. Investors pushed the key barometer of share prices, the Hang Seng Index, to a 15-month high this month of 22,111.33 points. That was the highest level since August 2 last year.
The rally in the index got under way on August 31, when US Federal Reserve chairman Ben Bernanke hinted that a third round of asset purchases, or quantitative easing, could be coming.
Late last month, the Hong Kong Monetary Authority began intervening in the money market to stem a rising Hong Kong dollar, blaming inflows of hot, or speculative short-term money, and warned of asset bubbles forming in the city's economy.
The government responded by dampening the already overheated property market through, among other things, imposing higher taxes on non-local home buyers. Financial Secretary John Tsang Chun-wah blamed QE3 for fuelling real estate prices.
On the stock market, the HSI climbed 2,523.83 points, or 12.9 per cent, from 19,482.57 on August 31 to yesterday's close of 22,006.4. Average daily turnover for September and October stood at HK$52 billion, a 20 per cent jump from August.
Yet it was still lower compared with the 2011 average of HK$69 billion and a five-year average of HK$67 billion. Some asset managers warned that the buoyant sentiment that has underpinned the index since August may not last.
"What's different [about QE3] is that we now know that quantitative easing doesn't work, because otherwise they would not be doing another round," said Richard Cookson, the global chief investment officer of the private banking arm of Citigroup. "You can fool twice, but not three times."
The US announced the first round of QE in 2008, and from December 2008 to March this year, the Federal Reserve bought US$1.7 trillion of US treasuries and mortgage-backed securities in a bid to save the US economy from a sharp downturn.
In Hong Kong, the HSI surged as much as 65 per cent in the 180 days after QE1 was announced.
In the second round in November 2010, when the Fed promised to buy US$600 billion in the next eight months, the blue-chip index added more than 14 per cent over the following 180 days.
Yet this time analysts argue that another release of liquidity will have only a limited short-term impact on stock markets.
"Even investors are full of bullets, they have a lot of choices, like currencies, bonds, real estate etc. We are looking at earnings closely to see if the companies could live up to expectations, before we conduct further moves in the equity market," said Franki Chung, the chief investment officer of MEAG Hong Kong.
With QE3 unlikely to be the magic bullet for Hong Kong, the next catalyst for the city's equities, they said, would be improving mainland economic data and the relatively low valuation of mainland-related stocks.
"It is likely we will see evidence of increasing growth and positive impact from market-boosting measures from China," said Steven Leung, the director of institutional sales at stockbroker UOB Kay Hian.
"So even if there were some profit-taking activities after the QE rally, long-term investors will continue to increase their equity exposure."
Paul Pong, a managing director at Pegasus Fund Managers, said the Hong Kong-listed stocks of mainland companies were "no doubt" the most attractive part of the board.
Still, some market watchers think the market could get a continued fillip, but not from QE3.
"A key technical reason [for a rally ahead] is that many investors have been heavily shorting Hong Kong stocks," said Michael Kurtz, the global head of equity strategy at Japan's No 1 investment bank Nomura.
"There are a lot of short positions already in place and if Chinese data improves as predicted, these short positions will have to be covered and there will be a classical short squeeze."