Investors cautious of HK

THE slide in Mexico's financial markets is undermining investor confidence in other emerging markets, including Hong Kong, says Chris Roberts, director at Lippo Securities.

'The biggest problem for Hong Kong at the moment is Mexico,' he said at the Kiwani Club of Hong Kong yesterday.

Mr Roberts said a lot of American mutual funds invested in Mexico first.

'It was that market which whetted the appetites of so many investors for emerging markets globally.' But the slump in Mexico's financial markets as a result of the devaluation of the peso had affected sentiment globally and undermined investor confidence.

'A lot of American investors will be thinking twice before investing in other markets.

''Therefore, the short-term outlook for markets such as Hong Kong, Thailand and Malaysia - with big mutual fund interest - tends to converge, with individual merits ignored.' Chief equity strategist of Salomon Brothers, David Shulman, said with the 30 per cent devaluation of the Mexican peso in December and poor market performance in Southeast Asia, Salomon's primary concern for this year was the recent fall in the markets of emerging economies.

He said this trend might signal a slowdown in other economies later in the year, followed by a slowdown of the export-led growth in the Group of Seven countries.

Mr Shulman predicted that most of the global markets would remain range-bound, with the year beginning weaker and strengthening later.

Salomon would reduce further its Hong Kong allocation from 30 per cent to 20 per cent on concern about the impact of rising short-term interest rates on mutual fund cash flows.

Mr Roberts said redemption pressure still existed in the Hong Kong equity market, fed by fears of rising interest rates, declining property prices and China factors.

'The good news is that most of the negatives have been with us for a while and are acknowledged by most market participants, therefore their future effect on prices should be diluted.

'Sentiment is poor but not yet indicative of a major low,' Under a bearish trend, the market had sunk nearly four per cent so far this year.

Mr Roberts said the decline would continue, and the Hang Seng Index could drop below 6,000 and then move up to 10,000.