Main source: Story in China Securities Journal

Economic indicators are trending up in the PRC.

That has helped lift neighboring Hong Kong’s stock market to a 16-month high.

That just goes to show how closely these two markets are linked.

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The real estate sector, including this new residential project in suburban Shenzhen, is likely to continue getting help from the new Chinese leadership.  Photo: Andrew Vanburen

But of course it’s not just a rosier outlook for the Mainland economy that is lifting spirits in the Special Administrative Region that is Hong Kong.

The SAR itself is looking forward to better economic indicators in the coming year which of course is spreading more smiles around the Hong Kong Stock Exchange.

Hong Kong’s benchmark Hang Seng Index closed Thursday at 22,446, or levels not seen since late summer of 2011.

But despite the more sanguine take on the regional economies, Hong Kong investors are still troubled by developments in the world’s two biggest markets: the US and the EU.

The political gridlock in Washington, which failed to ease after the reelection of President Obama, is making it less likely that an effective strategy can be put in place before the economy reaches the proverbial “fiscal cliff.”

Despite the consensus opinion being that the two sides will eventually find a way to resolve the looming crisis in time, the foot dragging and ill will between the parties involved in causing anxiety among investors in the region, given the importance of the US market to the global economy.

And market sentiment is more about feeling than fact – and fear trumps good financials – so the lack of a resolution in Washington adds to the overall anxiety overhang in bourses worldwide, including of course Hong Kong.

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Hong Kong shares (above) have been outperforming China equities for most of 2012

The European Union is not doing much better a job at boosting confidence in global markets.

The sovereign debt crises crippling many of its members is keeping bourse sentiment stifled.

Although the situation there has stabilized somewhat, the major financial holes dug by Greece and Spain in particular are threatening to upset the larger apple cart.

And getting back to the regional economy... the name of the game these days is clarity.

That’s how most market watchers are saying things stand right now, especially after the smooth transition to another national leadership team in Beijing recently, and their clear calls for more support of specific industries, domestic consumption and economic growth.

Therefore, the fact that pronouncements from Beijing on economic policy in 2013 and beyond trump the minor improvements in Europe and the US reveal the already substantial and growing influence that events in the PRC have over Hong Kong’s capital markets.

Hong Kong and China have both been echoing similar wishes since the Wall Street Crash of 2008 of the urgent need to “decouple” from the struggling export markets of the west.

One can only wonder if the rapidly intertwining economies and stock markets that are the SAR and the PRC will someday wish for a similar “decoupling” from each other?

Like the sayings go: ‘Everything in moderation’, and ‘Slow and steady wins the race’.

See also:

BIG BROTHER? China Firms Dominating Blockbuster HK IPOs

Hong Kong Consumer Sector Scan; OTO Healthier?

China Retail Rundown; XTEP ‘Buy’; ANTA Mixed


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