POLITICS may have grabbed the international headlines, but the business of Hong Kong remained business, and by any measure 1993 was an astonishing year. It was a year when metaphors and superlatives were inadequate and that barometer of the territory's health, the Hang Seng index, took off into the fairytale world beyond 11,000. Spurred on by increased trade and direct investment to China, the macro economy continued its upward passage, but it was in the financial markets that the real drama lay. It was a year to have taken your cash from the bank and bought assets. Any would have done since the only way was up on a curve that got steeper as the year wore on. Above all else, 1993 will be remembered as the year when Hong Kong transformed itself into a truly international capital market. That process included the panoply of new debt instruments which emerged, and the roaring success of the mainland company listings (H-shares), but the true significance was less tangible. In smashing through hurdle after hurdle in the last quarter's run-up, the Hong Kong market perhaps once and for all shrugged off the fickle image that had long dogged it. Politics, it seemed, had been exorcised as a determinant of share prices, thereby opening the route to an unfettered valuation of the underlying market. International capital flows were the key as foreign money poured into the market in amounts never previously witnessed. While local interest was focused on the details of Sino-British politicking during the spring and summer, international investors were winding themselves up to enter the market, taking the view that politics were an irrelevance in the context of the economic growth centred on Hong Kong. Institutional funds, in particular from the United States, woke up to the potential of Asia's emerging markets, and none had more appeal than Hong Kong with its direct play on the booming China economy. The change was one of perception and one broker summed up the year in his saying - heard from October onwards - ''who cares, this place is now China''. In comparison with the sell-off that accompanied the gazetting of the electoral reform bill in March, the flippant dismissal of Beijing's reaction to its introduction in November indicated that the game was now being played under a new set of rules. On September 29, Morgan Stanley's chief global strategist, Barton Biggs, made his extremely bullish assessment which in retrospect was simply the articulation of a sentiment which had been building up over the summer. If looking for a single turning point, the reaction to Beijing's failed Olympic bid would probably be it. When a market takes a piece of potentially disastrous news in the breezy way that the Hong Kong did in September, ''buy'' signals flash large. To assess the reasons for the October take-off in share prices look no further than the 94 per cent upwards revaluation of Henderson Land's net asset value, the 42 per cent increase in Sun Hung Kai Property's interim profit figures and the huge earnings multiples that Singapore Telecom and Telecom Asia in Bangkok were being valued against. Measured against those figures, fund managers with huge liquidity at their disposal simply figured ''this market is cheap'' and steamed in exploding share values upward. In a matter of weeks the old certainties which had underpinned the established catechism of the local investment community had been swept aside and a new language was being found to describe the events impacting on Hong Kong. Expectations were lifted upwards and the talk switched to a market hitting 14,000 on the assumption that the traditional risk premium had been left behind along with the memories of a different era. The run-up in Hong Kong had its own distinct flavour defined by its economic positioning on China's doorstep, but the charge in stock prices was a regional affair. From Bangkok to Manila, through to Kuala Lumpur and Singapore, the impact of international capital was felt. The vogue for emerging market investment brought fund managers from Europe, Japan and, most importantly, the United States in numbers not previously witnessed. Whether the regional bull market can outlast the inevitable upturn in global interest rates and the consequent repatriation of much of the investment flows that have arrived this year remains to be seen. However there is no doubt, in Hong Kong's case, that it has emerged a very different animal to the one that entered 1993. Going back to January the Hang Seng index was hovering nervously around 5,000 after the storm which accompanied Governor Chris Patten's democracy proposals doused market confidence. Through January and February the index inched cautiously upwards with the political rumour mill causing daily mood swings as to the likelihood of a political settlement. That abruptly changed on March 12 when the Governor went ahead and gazetted his much maligned bill. In the subsequent days more than 500 points were knocked off the index as investors retreated into a period of introspection. All the while the reporting season was in full swing and the story from the board rooms was one of surging growth. Hongkong Bank stunned analysts with its 68 per cent profit increase to $14.32 billion, Swire recorded a 43 per cent rise to $4.4 billion, Cheung Kong clocked in with a 28 per cent rise to $6.26 billion and New World Development managed a 48 per cent riseto $1.39 billion. Later Hongkong Telecom drew gasps of horror and admiration alike for the $6.43 billion it chalked up. Despite the fact that Hong Kong's blue chips still derived only a fraction of their earnings from China, it was the economic growth across the border which defined the year in the markets. Through the spring and summer blue-chip activity idled as the political talks ground on fruitlessly and it was left to the small issues to provide the action. Second and third liners frequently dominated the daily turnover tables with dramatic share price movements, the result of the back-door listings or more commonly an unsubstantiated rumour. As inflation in China raced above 20 per cent in the urban areas and the renminbi's exchange rate appeared more tenuous by the day, the de facto privatisation of China's state industries proceeded with huge stakes being built up in Hong Kong companies. Targeting firms such as Tung Wing Steel and Kader Investment, Shougang Steel emerged as the champion of the game. By taking stakes in shell companies the mainland players bought themselves capital-raising vehicles without the bind of disclosure and scrutiny that a direct listing would have entailed. It was the year of new products and new jargon to be learned. Euro convertible bonds took Hong Kong corporates by storm as trifling interest rates made the logic of a debt issue compelling. That much of this money went straight back into higher yielding financial instruments is a worrying trend for the future health of companies but the process of debt financing looks here to stay. The futures exchange introduced index options to provide further hedging facilities for an investor-base demanding increasingly sophisticated vehicles and activity on the futures exchange rarely let up. However, the most significant broadening in the local market was the debut of the mainland H-share issuers. Raising a total of $6.9 billion thus far, the six flotations were fully taken up even if Shanghai Petrochemical made it by a hair's breadth. Arranging and underwriting the issues created massive fees for the investment banks, despite being accused of providing an incomplete service to their clients in some cases. Like bees to honey, the scent of profits drew more banks to the territory, with the US houses characteristically aggressive in their pricing and staff hiring. It was also a year when corporate governance and the regulatory structures took a giant step forward, not before time many would argue - particularly with other financial centres, in and out of China, snapping at Hong Kong's heels to claim a piece of thehuge capital requirements the mainland economy demands. Among a string of actions, local brokerage Peregrine took the rap for creating a picture of false demand after failing to ensure a big enough public float of shares in a series of new issues, and the commercial crime bureau's raid on the Allied group's offices was said to signal wider ranging powers to clamp down on boardroom malpractice. Perhaps more telling still, was the trend to self-regulation in the realm of corporate accountability. Li Ka-shing, who talked down the Cheung Kong share price and so rendered the covered warrants worthless at expiry, ended up biting the bullet and bought them back. Minority shareholders fought off Wharf's attempt to privatise the harbour centre and the Sincere directors handed back their $115 million bonus after public outcry. Banks also began to open themselves to public scrutiny, with the Hang Seng Bank revealing a partial picture of its balance sheet. The so-called cartel felt the winds of change all year despite maintaining record lending spreads. The Bank of China became an official note issuer, forming a triumvirate with Hongkong Bank and Standard Chartered, and the problem of the industry's over involvement in the property market reached a head with the Bank of America beginning what many expect to form a trend towards mortgage securitisation. Providing further evidence of Hong Kong's maturity, the market skipped the traditional Christmas breather and raced to close above 11,000. All bets against 14,000 next year would seem to be off.