HONG Kong will maintain its status as a regional fund management centre even though flows from major overseas markets are likely to slow, fund managers say. Pressure on the dollar is likely to have less effect than the souring of United States and Japanese retail investor sentiment towards emerging markets following the debacle in Mexico. Roger Pyrke, chairman of the Hong Kong Investment Funds Association, whose members have about US$30 billion under management, yesterday said: 'The sell-off is not unique to Hong Kong, it is regional. 'Hong Kong is bearing the brunt because it is the most liquid market in the region. In the short term we are likely to see a slowing down in funds flowing from the US. 'Asian markets seem to be categorised with the same problems as Mexico in the minds of US investors. It is unfair but that's life.' Dudley Howard, managing director of Howard Flight, which has about $3 billion under management, said: 'Investors are worried that Mexico may happen here. However, we are comfortable that the [Hong Kong Monetary Authority] has sufficient reserves and determination to keep the peg with the US dollar firmly. 'We are aware that the jitters are upsetting investors and the market is being unsettled by the length of time it is taking for interest rates to reach their ceiling.' Mr Howard said another rise in interest rates would probably secure the currency, but would be another 'nail in the coffin' for the stock market and property sector. 'We are edging closer to the moment when Hong Kong is becoming an opportunity to buy. 'It is clear that while people are panicking it is the opportunity for longer-term buyers to pick up stock cheaply. Anything below these levels is going to be temporary.' Howard Flight, which in addition to its range of equity funds has nine bond funds, had seen few redemptions by its investors, Mr Howard said: 'We are now a year into a bear market. We are going to see the bond market leading the equity market this year.' Gregory Neumann, executive director of Scudder, a major US fund management group with about $3 billion divided between Latin American equities and debt, said the fundamentals in Latin America and Asia were sound and that investors were being driven by negative sentiment. Mr Neumann said: 'The fundamentals are intact and I do not think we will see any currency crisis.' He said that the problems in Mexico, which had heightened tension locally, would rapidly stabilise. 'Some investors are seeing the sell-off in Latin America as overstated and [are] comparing events with what happened in 1990 in the US high-yield bond market when there was a massive sell-off with little discrimination. 'Over the next three years the market rebounded with stronger liquidity and investors enjoying tremendous returns. 'We are beginning to see some smart, sophisticated clients looking on the sell-off in bonds and equities as a buying opportunity.' Ian McEvatt, chief executive of Indosuez Asset Management, believes current uncertainty is undermining investor confidence, but there appears to be no sign of panic. Mr McEvatt said: 'You are not seeing a run on funds or lines of investors forming outside mutual companies' doors.' But he said investor confidence in the US and Japan could not be more negative. 'I think you are going to find a lot more ordinary retail investors committing themselves to money-market funds. 'A lot of investors who had been comfortable with emerging markets and the idea of risk have had their fingers burnt to a cinder. 'They are equating Mexico's problems with other emerging markets without any depth of understanding why things might be different in these markets. 'Hong Kong investors now have the ability to short the market and that is exaggerating normal volatility.'
