Does Hong Kong gain from China's stock meltdown?

Nearly a year ago, when pro-democracy protests brought parts of Hong Kong's business and commercial districts to a halt, there were signs that the Chinese government was looking to push the former British Crown Colony into the background as an international financial hub, while encouraging the two major mainland stock exchanges in Shanghai and Shenzhen to flourish.

But the events of the past week or so, when the world watched the mainland Chinese stock market lose more than 30 percent of its value, have renewed focus on Hong Kong's long-established reputation as a global trading center.

"China's misfortune may prove to be Hong Kong's gain," Mark Konyn, CEO at Hong Kong-based Cathay Conning Asset Management, told Reuters. "The Hong Kong market remains a reliable and well-governed alternative for China exposure and could represent good value once the dust settles."

As part of the hand-over agreement with Britain in the mid-1990s, Hong Kong was allowed a certain level of self-government and to maintain a basically capitalist economic system until 2047.

And while Hong Kong's Hang Seng Index was also impacted by the sharp drop in equities listed on the mainland Chinese exchanges, analysts say it's also been insulated from much of the volatility affecting its counterparts elsewhere in the People's Republic.

According to Jack Strauss, an economist at the University of Denver's Daniels College of Business, China has been following a pattern seen in a lot of emerging and rapidly-growing economic markets. "Over the past year the Chinese stock market has, after being in the doldrums for several years, rocketed and more than doubled. But unfortunately a lot of this was due to borrowed money. As a result, the stock market became overvalued."

"People all of a sudden woke up and realized that this wild ride may be coming to an end. And at least some people thought it was better to cash out."

In comparison, the Hong Kong market has been more stable, Strauss said.

In short, while Hong Kong did not experience the direct effects of China's stock market boom, it's also avoided the worst of its decline. And that disparity is highlighting the problems the Chinese government faces with its stock market.