THIS was the week when the bandits got their collars felt. We mean the fund management industry, which will now have to find another way to siphon cash out of mutual funds and unit trusts that went into their pockets, now that the Securities and Futures Commission has said any rebates on broking commission must go to the punters and not the managers. It is slightly surprising to Hindsight that soft dollar deals have not also been outlawed. On first sight, the soft dollar deals seem more reasonable. Fund managers are given services like terminals or research in return for using brokerages. But given the abysmal failure of researchers over the course of the year, one wonders what kind of value should be put on the kind of trash that some firms put out. Despite a year of drop after drop on the Hang Seng Index finding a sell notice in the territory has still been as tricky as, some of our local company directors. Actually, the fall in the Hang Seng Index this year is a myth as Hindsight's graph conclusively proves. The important thing is to look at the big picture and get the recent (read since January) correction into the perspective of a phenomenal 1993, as fund managers all over town have been telling punters with their last choking breaths as hands tighten round their throats. Despite the SFC moves there are a number of ways in which fund managers can take just a little bit more. Hidden charges like custodial fees, which could be going to a company related to the fund managers, can take significant chunks out of earnings. The SFC was also in some hot six-way court action this week seeking to restrain some of the people behind MKI Corp from interfering in the running of Chesterfield, MKI's associate firm. The SFC is also petitioning to have MKI, closely associated with former ChinTung Securities chief Arthur Lai Cheuk-kwan, wound up. This is fascinating stuff, not just because the whole sordid tale of MKI is fascinating, but because it could not have happened before. It was only in July that the SFC got the right to investigate companies in the way in which they are doing at Chesterfield and MKI. There was in the past no way of checking announcements companies made, except by ringing up the director and asking. 'Hello Mr Wong, do you really have a new building in China worth $140 billion?.' 'Are you calling me a liar?' 'Er, no.' End of investigation. Back to the market: the Hong Kong slipped through a freak wormhole in space and for a while we were back in September 1993. Or at least we were as far as the Hang Seng Index was concerned. It sampled life below the 8,000 point threshold this week in a series of drops which were driven from the futures market, which in turn was driven from New York. The index rebounded a bit on Wednesday and strongly on Thursday, jumping 3.28 per cent to 8,260 points on thin trade. This was despite a dismal land auction at which just one bid was placed. The Yuen Long residential site was withdrawn, the first such site not to sell since the dark days of 1984, when none of the property developers had any money. Yesterday, reality reasserted itself and the index dropped 96 to close at 8,196 points. It was clear that the big gains on Thursday were technical. Some stocks were clearly oversold, but Hindsight would not have grouped Chesterfield, which put on 29.23 per cent among them. There is no accounting for taste. There were also some stocks still falling. Herald Holdings dropped 10.34 per cent and no one had to look far for a reason. On Thursday night, the company announced interim net profits of $18.44 million - down from $215.07 million a year ago. Herald was one of the most hyped smaller stocks early this year along with other exploding firms like Hanny Magnetics. It looks as if Jurassic Park fever ended a bit too quickly for Herald. Another company which had a bad six months is Tack Hsin. This company blamed the cost of shifting a restaurant operation from Tsim Sha Tsui to Mongkok for the drop in operating profits to $877,000 from $17.8 million. But sales of property gained the group $58.6 million. This company owns most of its own restaurants - think about it. Fortunately for the analyst community, Hindsight can't think of anyone who ever tipped this stock. Okay, so one of Hindsight's graphs bends the truth somewhat this week by cleverly cutting off the most recent few months. But the other graph is deadly serious. By subtracting the three-month London Inter Bank Offer Rate from Eurodollar futures, you can get a snapshot of the market's total wisdom (such as it is) of how much Fed fund rates are going to move. Hindsight has added the current rate back in. Pause for a moment and make a list of all the people who advised you wrongly about interest rates and what their effects would be this year.
