When I was in business school right at the time of the handover of Hong Kong to the Chinese mainland, one professor told me that: “Everyone should really get out of there.” People were honestly worried that the Chinese would mess things up.

Nothing, of course, could be further from the truth. Hong Kong has blossomed ever since — surviving both the Asian Crisis and the recent Wall Street Crisis.

Investors did not believe that Hong Kong can remain a vibrant democracy. Of course, considering that the mainland Chinese are communist in name only and have been reforming for a long time, those worries were misguided.

The other worry was that port functionality for Hong Kong — as commerce has always been the heart of the city — wouldn’t be as important because traffic would be taken over by mainland cities. This has not happened either. China is big — there is room for both Shanghai and Hong Kong to be important trading centers.

Hong Kong is all about trade and finance — the value of goods and services trade is about four times GDP due to the huge amount of re-exports as Chinese companies ship to the port city, from which goods then leave for the rest of the world.

Since Hong Kong is such an important trading hub for China and some say China is “imploding,” shouldn’t Hong Kong be “imploding” too? Since 40% of the firms listed on the Hong Kong Stock Exchange are now mainland Chinese companies (60% of the stock market capitalization and 70% of turnover), the performance of the Hong Kong market reflects the mainland economy more than anything else. Still, the action of the Hong Kong Hang Seng benchmark index certainly does not suggest anything other than a consolidation trading range typical after a big run. Our view still remains that the PBOC is trying to downshift the economy a gear, not halt it completely.

Someday, the peg of the Hong Kong dollar — which has been pegged to the U.S. dollar since 1983 — will go away and the renminbi will take its place. The current peg creates a lot of upward pressure on the Hong Kong real estate market as low rates cause overheating of real estate prices. Due to the peg, officials have to use other ways to cool down real estate speculation rather than interest rates which cannot deviate much from those in the U.S.

There are 150 ADRs, but only a handful of them are listed. As a reminder, if an ADR trades OTC it typically has a five-letter symbol and ends in the letter “Y” — five-letter symbols that end of “F” are the foreign shares trading in the U.S., not ADRs. Trading OTC for liquid ADRs is not a problem per se; foreign companies often choose to trade OTC as they have much different accounting regulations at home and it is cumbersome to convert to GAAP (plus it’s more expensive when it comes to listing fees to trade on the NYSE).

The iShares MSCI Hong Kong Index Fund (NYSE: EWH) is the popular country ETF that has $1.8 billion in assets and holds the major Hong Kong companies. The ETF also has liquid options for market timers. Since the trade hub is all about commerce, 60% of the ETF is in financials (banks, real estate companies, etc.). With this super-simulative U.S. monetary policy that also affects the Hong Kong dollar, no wonder that EWH is doing relatively better than the Shanghai Composite.

In addition, even though both Cheung Kong Holdings (OTC: CHEUY) and Hutchson Whampoa (OTC: HUWHY) are part of the ETF, those two companies have huge overlap as they have a cross-shareholding relationship and own parts of the same assets. They are both controlled by Li-Kashing — considered one of the most powerful figures in Asia. His many businesses cover nearly every facet of life in Hong Kong — from telecommunications to the Internet, banking to real estate and plastic manufacturing to steel. However, despite his wealth, Li-Kashing has cultivated a reputation for leading a no-frills lifestyle.

You can own one or the other as they have similar long-term performance. Cheung Kong is the investment arm of Li-Kashing and is engaged in property development, property management, and invests in other stocks — similar to Berkshire Hathaway (NYSE: BRK.B).

Cheung Kong holds a 49.97% interest in Hutchison Whampoa, which operates ports, develops real estate and has investments in numerous businesses in 54 countries. CHEUY trades at 11 times earnings and has a 1% dividend yield. The fate of the company is so closely intertwined with Hong Kong, that one can use it a proxy for the country knowing that it is run by one of the smartest investors in the world.

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