Hong Kong exports to Asia surged 29.6% in January 2011

Demand in Asia was notably strong, especially from Thailand which rose by 72.7 percent, India by 65.5 percent, Vietnam by 36.9 percent, and Korea by 30.7 percent.

According to HSBC, Destinations-wise, shipments to all key destinations including the US, Asia and China all accelerated to increase by 27.5% (Dec: 12.1%), 29.6% (Dec: 12.9%) and 29.3% (Dec: 9.9%) respectively.

As for most of last year, China continued to absorb and drive the bulk of Hong Kong's shipments in January. That said, the laggards weren't far behind in this time either. As US and European manufacturing recovery continued to firm up, Asia went into overdrive.

The simultaneous strength of all key buyers pushed the y-o-y growth rate of Hong Kong exports up to a five-month high. Seasonality may have had something to do with it, as Asian buyers celebrating the Lunar New Year in February rushed to complete their shipments before the holidays started. As such, comparing January and February's trade numbers together may provide a more accurate reflection of the underlying trend in Hong Kong's trade sector.

Irrespective of seasonality issues however, today's result lends further credence to our view that Hong Kong's growth is in no danger of dipping any time soon. We expect both external demand and local consumption to hold strong for most of 2011, underpinning why inflation remains our top macro concern this year. The continued cree -up of Brent prices only intensifies this case.

Ultimately, inflation can be considered "pay-back" for HK's stellar economic performance last year. On the other hand, one could also argue that provides some form of counter-balance to an economy in danger of going into ove -drive. Irrespective, Hong Kong won't be the only one facing inflationary pressures in Asia this year, be it in consumer or asset prices. The crux is whether the Authority is able to exercise sufficient fiscal restraint while simultaneously implement effective property market cooling measures.

Hong Kong's growth engine shows no signs of wear or tear, be it on the outside (external trade) or inside (household spending). China has a lot to do with it (think Mainland investors and shoppers), as does the US (think excessively loose monetary policy). Such a sizzling growth scene will make the slight positive impulse delivered by the budget that much trickier for inflation to digest.