It was only four years ago that political jitters in Hong Kong sent its stock market tumbling. As London and Peking began negotiating the territory's return to Chinese sovereignty in 1997, when Britain's colonial leases expire, shares became about as much in demand as sand in the Sahara.
Coupled with a collapse in the local real estate market, which is the backbone of the Hong Kong economy, the bleak political outlook reduced stock prices by more than 50 percent in little more than a year. For many observers, Hong Kong's days as a speculator's paradise were done.
Now the Hong Kong market is once again booming. The irony is that local concern over the future of this bustling territory has not abated but has become one of the main things driving stock values upward.
The local Hang Seng index, which closed at a record 2,355.93 on Tuesday, has now tripled from its low point during the Sino-British talks. And it has gained almost 40 percent since the current rally got under way in July; daily volume is running at more than twice the average for 1985.
This performance has made Hong Kong the world's premier market over the past several months. Yet the territory's political uncertainty has not diminished substantially since Britain and China reached an agreement on Hong Kong's future in December 1984.
Rather, local entrepreneurs are steadily liquefying their assets by floating more shares on the market, thus fueling the dramatic increase in trading.
Analysts say some are cutting the percentage of shares held privately from, say, 75 percent to levels closer to the 35 percent officially required to maintain control of a listed company. In addition, roughly a dozen new stocks have been issued so far this year.
At the same time, foreign institutions and funds from Japan, the United States, and Europe have been purchasing Hong Kong stocks in record amounts. The market's traditional makeup -- 60 percent of it is generally held locally and 40 percent by overseas investors -- has effectively been turned upside down.
``Locally there has been a lot of selling,'' says Oscar Wong, an analyst at GT Management (Asia) Ltd., a London-based fund management firm that follows Asian exchanges closely. ``But the political factor actually helps as long as international buyers are coming in.''
In effect, Hong Kong's stock market is the most visible example of what is beginning to emerge in the colony's economy as a whole; as 1997 approaches, most economists now believe, Hong Kong will draw its dynamism less from local capital and more from foreign investors.
The latter, of course, are relatively immune to the sovereignty issue and tend to view the territory just as Peking does -- as a gateway to the mainland, with no distinct identity of its own.
For the share market itself, the current boom could not have come at a more propitious moment. At the beginning of October, Hong Kong officially inaugurated a unified stock exchange that draws together what had been four separate markets.
At the same time, the trading system has been computerized and the government has introduced tighter regulations and supervisory procedures. All of these moves are intended to make the market more hospitable to institutional investors, who have traditionally viewed Hong Kong -- and most other Asian markets -- as too speculative.
More immediately, overseas buyers have been retreating from the Tokyo market, which is now weakening after a strong upward push that began late last year. With the leveling off of the value of the US dollar, to which Hong Kong's currency is linked, there is also less concern now with potential currency losses associated with investments in Hong Kong shares.
Despite their recent rise, Hong Kong stocks are still relatively cheap. Price/earnings ratios here, at 12 to 13, compare very favorably with Tokyo's 45 and Singapore's 30. Corporate profits this year are expected to rise by up to 30 percent.
As such forecasts suggest, Hong Kong's economy is on a roll. Earlier this week the government announced that exports in September gained 30 percent over the same month last year.
Growth predictions, which were less than 5 percent early in 1986, are now in the range of 7 to 8 percent.
``The economic fundamentals are very strong,'' says Carlton L. Poon, research director at Vickers da Costa & Co., a brokerage unit of Citicorp. ``There will be some profit taking, but the market is still headed upward.''
Basing its analysis chiefly on price/earnings criteria, Vickers forecasts the Hang Seng index rising to 3,000 sometime next year.
Hong Kong manufacturers have clearly benefited from the weakening of the US currency since the Group of Five finance ministers decided a year ago to counter its global dominance.
But despite the role of exports in Hong Kong's recovery, investors continue to look for the impact of exports on the overall economy.
The sectors that are favored are property and utilities, which together account for almost half of the market's capitalization.
Hong Kong industrials, which are facing a continuing threat of protectionism in the West, are less popular. And until recently, so were financial stocks, reflecting weakness in the banking sector that has caused seven local institutions to seek government assistance over the last several years.