It's undeniable that a lot of smart money is floating around in Hong Kong's capital market. In hindsight, the sell-off of local stocks late last year and the subsequent capital flight were fully justified by the economic downturn, accompanied by the property sector's cyclical adjustment, which took average home prices down more than 20 percent from their peak in mid-2015.

There are now signs that the economic slowdown will not deteriorate into a full-scale recession, and the real estate downcycle is about to run its course. The unemployment rate may rise slightly in the coming months as the retail sector has yet to regain its footing. But the construction boom has continued, thanks largely to the abundance of infrastructure projects, including the HK$141.5 billion third runway at Hong Kong International Airport.

Meanwhile, oil prices have surged past $50 a barrel, which is widely considered to be a key milestone for oil producers and the industry itself in trying to get out of the doldrums of the past few years. The price rise, without the need for production cuts, was an indication of the growing demand from the world's major oil consumers, including the United States and the Chinese mainland.

The performance of the US economy, indeed, is seen as solid enough to prompt the Federal Reserve to signal a strong possibility of another interest rate hike this summer.

In Hong Kong, many economic analysts seem to have ignored the latest developments and continue to harp on the mournful tune of economic woes. As they persist with their pessimistic mood, the stock market has staged a smart rally in the past several weeks.

The question now is not whether the smart money will return to the local bourse but how large the flow is. The increase in market turnover tells only part of the story. There is a vast array of securities-based derivative products that allow suave investors to maximize their profits if they place the right bet.

Based on the share price movements of individual stocks, the banking and energy sectors are leading the pack in the rally. Investors are not dumping defensive stocks, but are going after the undervalued property developers and trading companies.