Hong Kong's allure as beauty spot for bulls remains intact

So much for China's supposedly overheating economy. Equity markets appear untroubled with the Hang Seng Index flirting with 41-month highs and H shares recovering to early-year levels before austerity measures were introduced.

There is a back to the future feeling with the dominant market drivers being similar to a year ago when traders had to wrestle with a plunging US dollar and spill-over effects into a range of asset classes. Again more hot money flows are targeting a yuan revaluation while gold and commodity-backed currencies are soaring in value.

Hong Kong's fixed exchange rate dictates that capital-markets adjustments take place in monetary aggregates - in this case a surge in Hong Kong dollar funds sitting in the banking system. Higher asset prices have been the result. And with stock-market turnover pacing $20 billion plus a day and China Netcom chalking up a 10 per cent gain on its debut, bulls have plenty of encouragement.

Retail investors, always quick to sense a return of first-day gains in the initial public offering market are now gearing up for a bonanza with Air China's offer. It may yet time its listing as fortuitously as last year's blockbuster China Life.

A recent Credit Suisse First Boston note pitched a continuation of the reflation theme. Its argument was that the deficit will be reversed and the housing market will continue to recover with the compounding effect that individuals see a rise out of negative equity.

It also says money flows from a continued influx of mainland tourists will likely offset effects from a slowing mainland economy. What is more the opening of Disneyland next year, rounds off CSFB's list of reasons to buy. This promises to give another dimension to Mickey Mouse stocks, and why not given the run up in Macau casino concept stocks?