Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Some Hong Kongers will be sorry to hear that even the city's stock market is hitched to the mainland's fate. What's more, it's deeply connected to the Chinese government through state-owned companies. Don't fret, though -- that's great news for investors.

The benchmark Hang Seng Index just entered a bull market, having rallied 20.3 percent as of noon Thursday from its low on Feb. 12. Almost 40 percent of the gains were due to four Chinese stocks: the internet giant Tencent, China Construction Bank, China Mobile and China National Offshore Oil Corp. Three of those are state-owned.

Chinese Heavyweights
About 39 percent of the Hang Seng's move was caused by four Chinese stocks, three of them state-owned companies
Source: Bloomberg

Fully 36.4 percent of the Hong Kong gauge is now made up of Chinese state-owned companies, ranging from Industrial & Commercial Bank of China and China Construction Bank, the world's two biggest lenders by assets, to the oil explorer Kunlun Energy. And this year, Beijing has made a point of supporting the stocks of its key listed enterprises, so Hong Kong is hitching a ride.  

Beijing Connection
More than one-third of the Hang Seng Index is composed of Chinese state-owned companies
Source: Bloomberg

Even stocks whose fates are more intertwined with Hong Kong than with China are getting a boost from the positive sentiment emanating from this invisible hand. The best performers in the index since Feb. 12 were Wharf Holdings and New World Development, both property firms. Real estate is not necessarily the best bet in Hong Kong now, with prices dropping and mortgage costs rising this year. But those companies were buoyed by their investments in China.

Pacing the Gains
Wharf and New World have been the best performers in the Hang Seng since the index's low on Feb. 12
Source: Bloomberg
*Values indexed to Feb. 12 for comparability.

Hong Kong stocks were looking very cheap by mid-February, as I pointed out (OK, perhaps a week early), so there's a rationale for the rally. With the Nikkei 225 at a forward price-earnings ratio of 17.2 times, the S&P 500 at 18.5, and the Euro Stoxx 600 at 16.1, the Hang Seng at 12.2 still looks relatively inexpensive compared with other major developed stock markets. However, that's already above its five-year average of 10.9 times.

In the end, whether the bull market endures is really down to what happens in China. If the nation's economic picture continues to improve and the government keeps propping up the stock market, there may be more benefits yet for the Hang Seng.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at

To contact the editor responsible for this story:
Paul Sillitoe at