Ever since the policy decision of Deng Xiaoping in ?92 concerning the economic restructuring of China, the Chinese economy has become a prominent player in the global economy. The opening of the domestic market to foreign investors has created a tremendous rise in GDP (average annual growth of 9.5%). The People's Republic has made significant progress towards integration with the world economy over the past decade. China is characterised by its fixed exchange rates, keeping their currency undervalued involving a major annual increase in exports and thereby creating current account surpluses (export ? led growth). Due to their financial restructuring of the nineties the Chinese financial markets have become more integrated into the global financial market. These developments are anticipated to have crucial implications for the behaviour of the Chinese stock markets (Hang Seng). Meanwhile, the US remains the most prominent player in the global financial economy. Therefore it is important to enlighten the behaviour of the Chinese stock market (Hang Seng) compared to the US stock market (S&P500) through the analysis of co movements. The inclusion of the S&P500 is important for two reasons. First, the US market serves as a reasonable proxy for the mature stock market respectively in depicting possible linkages with the emerging Hang Seng stock market. Second, due to investment and trade flows the S&P500 is expected to play an influential role in international stock market movements. Stock markets co movements may have considerable repercussions for equity market risk, asset valuation and portfolio allocation. If for instance, stock markets are co integrated they would exhibit a stable long term relationship, implying limited diversification benefits for internati ...