HONG KONG options traders have never been so bullish on the city’s stock market after surging inflows from mainland propelled the Hang Seng Index to the biggest rally worldwide last week.

    Wagers on gains for the benchmark gauge increased to the most expensive level on record versus bearish ones Friday as the measure completed a 7.9 percent weekly advance, the most among major global equity gauges.

    Surging demand for bullish contracts has been a past harbinger of gains, with the Hang Seng index posting an average one-month increase of 1.3 percent the five times since 2005 that calls became pricier than puts.

    The mania that sent the Shanghai Composite Index to an 89 percent advance over the past 12 months is spreading to Hong Kong as mainland investors use the cross-city exchange link to hunt for bargains in Hong Kong.

    While a technical indicator suggests Hong Kong shares are now more vulnerable to declines than any other market, dual-listed companies in the city still trade at a discount of about 20 percent versus the mainland.

    “Hong Kong will outperform the mainland in the next couple of months,” said Matthew Sherwood, head of investment markets research in Sydney at Perpetual Ltd.

    “There’s been a lot of hot money flowing out of the mainland, where markets have rallied strongly, into Hong Kong, which had largely missed the rally. Valuations are not expensive relative to the rest of the world,” Sherwood said.

    Last week’s rally was the biggest since October 2011, sending the Hang Seng index to a seven-year high of 27,272.39. A gauge of mainland companies listed in the city gained 10 percent as investors bet valuations will converge with the mainland.

    (SD-Agencies)