The Year of the Dragon may have some fire left in its belly yet.
Photo: Andrew Vanburen

Translated by Andrew Vanburen from a Chinese-language piece in Sinafinance

IT MAY BE time to start daring to smile again in Hong Kong, and even hazard a grin, at least for the shareholders in the city's stock market are concerned.

In fact, the current Year of the Dragon may have a bit of fire left in its belly yet.

Contrary to some of the ‘Sky is Falling’ panicked pronouncements from gun-shy shareholders, there are in fact more than a small assortment of reasons to be somewhat more optimistic about things in Hong Kong.

In this increasingly interconnected and interdependent world which we all call home, it is becoming a commonplace practice among market watchers to look to trouble spots outside of Hong Kong to determine the health of shares in the Special Administrative Region, and where they're headed.

Therefore, it should come as no surprise to those with money in the local market to often be seen doing more than a cursory skim-job of the international sections of their favorite dailies or portals.

So let’s take a look at one of the biggest trouble spots – Spain -- on a very financially and fiscally skittish continent – Europe.

News of the 100 billion euro (125 billion usd) bailout plan over the weekend for struggling Spanish lenders comes as very welcome relief to more than just financially strapped Iberians.

All of Europe was able to breathe easier after the announcement as Spain is the fourth largest economy in the Eurozone.

And on the other side of the world, this is also very good news for Mainland China, as the EU is the PRC’s largest trading partner.

Hong Kong shares half-year performance

And we all know what’s good for the goose...

So when the EU got a shot of confidence (read: healthier countries’ money), its biggest trading partner cheered and this of course was interpreted as good news in Hong Kong’s stock market, given that most of the bourse’s capitalization exists in the form of PRC-based firms.

Staying with the European theme for a bit longer, the temporary respite in Spain means a smoother election this coming Sunday in another Mediterranean nation with even worse balance sheets – Greece.

If Spain was left helplessly hanging for another week, some analysts even said that it would become even more likely that the upcoming elections in Greece would push the Hellenic Republic even closer to withdrawing its membership from the EU – with many seeing a possible domino effect to follow such a move.

Secondly, and a lot closer to home, is the situation across the de facto border in Mainland China.

The latest trade figures from the world’s most populous nation -- and its second biggest economy -- surprised on the upside.

China’s exports in May jumped 15.3% year-on-year, topping April's 4.9% rise and far outmuscling most analysts' forecasts.

Meanwhile, imports into China last month rose 12.7%, also easily outperforming forecasts and April’s paltry 0.3% increase.

The fact that the People’s Bank of China cut interest rates by 0.25% last week, the first such move since 2008, put most people in the mood for further disappointment as Beijing looked to be propping up the economy through pump-priming.

Therefore the higher-than-expected trade figures put many in a buoyant mood on Monday, with worries over China’s slowing GDP abated somewhat.

So do events in Beijing and Madrid directly impact things in Hong Kong?

By way of an answer, the benchmark Hang Seng Index closed Monday up well over 2%.

See also:

FASTEN SEAT BELTS: HK Market In For More Madness

HK Turnaround Possible This Week

12 HK-Listcos In M&A Crosshairs

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