STOCK market value is a measure that brokers, analysts, fund managers and economists the world over have been trying to quantify ever since share trading was invented. For the Hongkong investor the sporadic rises being seen in local stocks can be a little disconcerting as valuation models need to be adjusted and re-assessed for every major swing in the Hang Seng Index. There are quite a number of valuation systems available to investors to use in determining market value in Hongkong. These include various forms of sophisticated computer-driven analysis, technical analysis or chartism, systems using market momentum theory and, of course, there are plain old personal hunches. From time to time Business Post will take a look at these methods. Today a number of ratio evaluations used by analysts will be studied. These tend to be heavily used by brokers analysing Western equity markets like London and New York which tend to be more efficient, and valuations tend to be greatly affected by the existence of mature bond markets. The table shows a number of ratios used by Goldman Sachs in the valuation of markets, which has been made applicable to Hongkong by SG Warburg Securities. At Goldman Sachs, Mr Sushil Wadhwani and Mr Mushtaq Shah in Valuation Indicators and Stock Market Prediction say: ''Most investors partially base their views on the attractiveness of a particular equity market on its valuation status. ''However, there are a large number of possible valuation indicators, and they do not always point in the same direction.'' This is clearly shown in the table, as on a number of tests the market is overvalued while and according to others it is significantly undervalued. A negative sign represents overvaluation. In fact, the table ought to include a number of ratios showing the relative attractiveness of Hongkong compared with its regional counterparts in terms of price-earnings and inflation-yield ratios. In the West, bond yield and dividend yield ratios are very closely followed. Sometimes called the reverse yield ratio, it shows the relationship between the yields from the apparently safer bond investment compared with the dividend yield attached to thenormally riskier equity investment. The moment these two yields move close together, as they did on Wall Street in 1987 before the October Crash and in Japan in late 1989, you find a mass exodus by investors from stocks into the safer fixed-interest investments. In Asian markets, where fixed-interest investment via domestic bond markets is still not very developed, this ratio does not apply. The information from the Hongkong stock market shows the market is overvalued as measured by dividend yield, inflation to dividend yield, inflation to earnings yield, and compared with dividend yields in the US. Mr Danny Truell, SG Warburg Securities' head of research in Hongkong, says he actually does not find knowing this kind of information all that useful. ''I tend to use the 12-month price-earnings ratio as my measure of market value in Hongkong. This is a fairly good measure and I believe it is actually better than looking at things like dividend yield and interest rates over the longer term,'' he said. The reason a number of the more traditional yardsticks used elsewhere do not readily apply to Hongkong is the international nature of the stock market coupled with the low correlation between domestic fundamentals and those prevalent in other international markets. Many international investors are not affected by Hongkong's domestic interest rates, but they do remain an important factor affecting stock market valuation nevertheless. For domestic investors, when the dividend yield and short rates of interest are around the same level, then it is fairly reasonable to suggest the stock market is well supported. If the dividend yield rises above that of short rates then the market is fairly secure on a yield basis. Should the short rate rise rapidly above the yield offered by stocks, then stock valuations are vulnerable. ''This is important to major investors, as opposed to your short-term stock market punters,'' Mr Truell said. ''Many large investors will be looking to dividends as a recurring source of income.'' High short-end rates over a long period which exceed dividend yield from shares will make large investors in the stock market increase their exposure to fixed interest rates at the short end, meaning an important degree of support for equities will be lost. For this to happen in Hongkong under present circumstances, local interest rates would have to rise more than 200 basis points. They would have to rise by at least 500 basis points before they stood any chance of becoming real against inflation. While the ratios provided are useful guides to value in an empirical sense, Goldman Sachs points out that in Hongkong, ''political events are expected to influence valuation more than fundamentals over the next few months''. The Sino-British row and the annual Most Favoured Nation status debate in the US represent two stumbling blocks in the way of significant index progress. ''Once these two issues are resolved, and on the assumption that they will ultimately be concluded favourably after an appropriate period of negotiation, the market should resume its upward trend,'' says the brokerage. The brokerage confirms that the data provided in the table stating price-earnings and short-rate yield ratio valuations are in the stock market's favour. Another factor that should affect an investor's view of the stock market is the economic circumstances in China. These have acted in Hongkong's favour as the boom in southern China has powered local corporate earnings forward. However, concerns are growing about rising inflation in China and whether or not this will prompt authorities later in the year to clamp down on economic growth. At present, the investment community in Hongkong has not yet decided that the threat of a slow-down in China is real. They have yet to downgrade their ratings of the Hongkong stock market on the basis that a slowing of economic activity north of the border will hurt corporate earnings and stock market fundamentals in the territory.