Hong Kong's stock market is on a roll, surging some 800 points this month. The Hang Seng index has been hovering around a five-and-a-half-year high despite concerns of higher U.S. interest rates.
The Hong Kong stock market is seeing huge turnovers of about $5 billion a day - a level not seen since 1998 when the Hong Kong government bought shares to prop the market at the height of the regional financial crisis.
Traders say U.S. and European investors have been fueling the rally. Concern of higher U.S. rates does not appear to be discouraging investors from buying the city's stocks even as Hong Kong's interest rates follow U.S. movements. Usually, higher interest rates draw investors away from stocks and into high-yield bank deposits.
Peter Lai, sales director of DBS Vickers Securities, says investors are speculating that China would appreciate the yuan, also known as the renminbi, further.
"These are the so-called hot money because they speculate that the renminbi may be appreciated again this week or in the coming weeks," he said. " So that's why they flood into the Hong Kong market."
Beijing has been under increasing pressure from the United States to liberalize its managed currency as Chinese President Hu Jintao visits Washington later this month. The U.S. argues that a weak yuan makes Chinese exports unfairly cheap and contributes to a widening trade gap between the trading partners.
Many large Chinese companies are listed in Hong Kong, making the territory a proxy market for investors betting on the yuan.
But with the market surging 800 points in two weeks, some traders warn of the danger of a market surging too fast, too soon.
Andrew Clarke, a trader at the French stockbrokers SG Securities, says the market would have to adjust at some point.
"I think we should be a lot lower than we are… at least 14,800," he said. " People have pointed to Hong Kong (stocks) as cheap. I think that at some stage we are going to have a problem. Not maybe right immediately but… you might see people start to realize that what they've actually bought may not be possibly what they wanted."
Investors are also pouring money into other Asian markets. Tokyo's Nikkei 225 index jumped three percent last week to a six-year high. Thailand's SET gained five percent last week to its highest in two years. The Morgan Stanley Capital International Asia-Pacific index - which represents the region's top companies - rose to its highest level in 16 years.
Most of the region's indexes eased from their highs Tuesday but some analysts say the long-term prospect for the region remains bullish.