Hong Kong investors expect little market fallout from a mass demonstration this week marking the anniversary of the territory's return to China, with many traders saying shares are likely to edge higher.
An expected rise in US interest rates will keep some investors sidelined but Chinese companies listed here, such as top oil and gas producer PetroChina, are seen attracting interest on hopes they would benefit from institutional investment from mainland China.
China said last week it had approved plans by mainland insurers to invest overseas, a move which could see some US $8 billion flowing into markets such as Hong Kong.
"It's a long term positive and will help sentiment," said Lilian Co, a fund manager at Baring Asset Management.
The Hang Seng China Enterprise Index, which groups Chinese stocks listed in Hong Kong, advanced 7.76 percent to 4,223.56 last week.
However officials are still deliberating a framework and timeline for the launch of the Qualified Domestic Institutional Investor scheme and analysts point out the plan is still in the early stages.
The blue-chip Hang Seng Index rose 2.78 percent last week to end at 12,185.52 but is still down 3.1 percent so far this year. Many traders expect the index to move toward 12,500 this week.
The US Federal Reserve is expected to raise interest rates by 0.25 percentage point at a meeting from June 29-30 and rate-sensitive property counters, such as Sun Hung Kai Properties, have already fallen in anticipation of the increase.
However market watchers say Hong Kong's banks will not necessarily follow the Federal Reserve's expected increase, despite the fact US monetary policy holds sway here because the local currency is pegged to the US dollar and the United States is the second largest trading partner.
"I think banks will want to keep rates unchanged to stimulate the economy," said Alex Wong, a director at Rexcapital Asset Management.
The market will be closed on Thursday to mark the seventh anniversary of the former British territory's return to China but analysts don't expect the occasion to disrupt the markets.
Organisers expect 300,000 people to demonstrate for the right to directly elect their own leader and all of their lawmakers from 2007, demands which Beijing firmly rejected in April.
"The market rarely reacts to political events. It would take a riot or Tung Chee-hwa to resign for some market reaction," said Baring's Co.
"I think we'll drift around the current levels," she added.
Last year the market rose after half million people took to the streets, largely due to relief that such a large protest went off peacefully and on expectations Beijing would hand out economic favours to help the economy and soothe discontent.
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