Hong Kong is 73 days away from becoming a region of the world's most populous nation, but the territory's stock brokers are more concerned about US employment data. As long as the currency peg exists, any change in US interest rates must be matched here. And with the Hang Seng Index dominated by interest-rate sensitive banks and property companies, the stock market is unable to ignore US macroeconomics. But what will happen when five, or 10, or even more constituents of the benchmark index are red chips? Or 50 per cent of the All Ordinaries Index is made up of China-related firms? There will be a market that better represents Hong Kong, a Chinese city that is a bridge to the rest of the world. Red chips such as China Resources, Shanghai Industrial, Cosco and Guangdong Investment already enjoy some of the highest daily turnover levels. And as the capitalisation of red chips steadily increases, so does their influence. As a result, a number of these companies are strong candidates for entry to the Hang Seng, raising the possibility that the blue-chip index will gradually become known as the purple-chip index. Analysts are predicting that as many as three red-chip companies will join the index by the end of 1998, with China Resources the most likely candidate. It is not hard to identify a number of blue-chip companies whose only apparent claim to be there is the persuasive personality of their chairmen. Then there is the steady stream of smaller Chinese companies that are listing in Hong Kong. There are 65 red chips or H shares trading on the All Ordinaries Index - 11 per cent of the total. This is about to increase sharply. About 50 H-share companies have been given permission to list overseas. Because many of them have balance sheets that only a Hong Kong investor could love, nearly all will list in the territory. Market sources see as many as 50 initial public offerings in the second half of the year, the majority China related. Even before the handover, Jingtai Co, the investment arm of the Beijing municipal government, and Tianjin Industrial Holdings, which is backed by the Tianjin municipal government, could well list. In an ironic twist, an increased Chinese presence in the market could reduce volatility. If half the Hang Seng Index was US oriented and the rest focused on China, negative news from either country would be cushioned. That in turn would make life more difficult for derivatives players, who bet for or against market-moving news coming out of the US, and have been blamed for much of the recent volatility. The resilience of China plays to US news can already be seen in their performance after US and Hong Kong interest rates rose 25 basis points at the end of March. China Resources and Shanghai Industrial are both up more than 20 per cent, while the Hang Seng China Enterprises Index, which tracks H shares, is up almost 7 per cent. However, more Chinese companies in the market and a consequent rise in mainland investment after the handover raises the likelihood of increased Chinese government influence on share prices. Analysts have pointed to the rally in the A and B-share mainland markets that were cooled after newspapers ran anti-speculation editorials at the apparent behest of the government. On the darker side, there are also fears that the large number of Chinese government officials, army officers and their children moving into Hong Kong may attempt to use their influence to manipulate share prices. In a few years Hong Kong investors may be staying up late in anticipation of Chinese inflation or industrial production numbers. Or they could be scouring the pages of the China Securities News for hints on Beijing's latest stance on the market.