A stimulative macroeconomic environment appears to be in place for Hong Kong stocks and real estate. Because Hong Kong pegs its currency to the U.S. dollar, it has floated down with the U.S. dollar against other currencies and is now about 20% cheaper on a trade-weighted basis since 2000 (adjusted for inflation). Even if domestic inflation picks up, the currency peg requires Hong Kong to keep its interest rates low, in line with U.S. rates.
The iShares MSCI Hong Kong Index exchange-traded fundhas been on a bit of a roller-coaster ride since the bullish case made in the Aug. 30, 2007 post, Hong Kong stocks. It had risen by 50% in late October, then corrected back to nearly breakeven by mid-March, and now has recovered to a gain of nearly 25% (in U.S.$). Conditions look favorable for further appreciation.