OVERSEAS mutual fund firms are wary of coming to Hong Kong because of the intense competition, says James Capel Asia executive chairman Philip Gray. 'In Hong Kong, the industry is highly competitive with at least 40 multi-national firms competing for a working population of about 2.6 million people,' Mr Gray said. Although Hong Kong was attractive because of its low taxation, high per capita gross domestic product (GDP), high savings and a faster rate of growth, it had a small population - six million - and less than half of them worked, he said. 'Maybe, Hong Kong is not the first choice I would go with because the situation is so tough and so competitive.' He suggested that new mutual fund companies set up elsewhere, such as Thailand, where a monopoly over mutual fund companies had been broken. 'There are a number of new mutual fund companies [in Thailand],' he said. 'The stock market is very active. It has a very broad stock market which means a mutual fund can offer diversification and there are enough stocks to add value to in terms of active management.' Speaking at a mutual fund conference, Mr Gray said mutual fund companies should consider the distribution of wealth and age, savings and economic growth before establishing a base and concentrating their activities in Asia. 'Mutual fund companies should understand the social economic dilemma in a country before focusing activities there.' He said India, for example, had a population of nearly a billion, but only 2.5 per cent earned more than US$2,500 a year. He added India had a wealth distribution problem which would not favour the setting up of mutual funds. China also faced a similar problem, with wealth mainly concentrated on the coastal cities. Its adult literacy rate was lowest among the Asian countries. Almost 30 per cent of the population could not read. Unlike these two huge populations, Singapore was 'unbelievably attractive' because of its high budget surplus at more than six per cent of GDP, against India with a deficit at two per cent of GDP. Singapore has a relatively high per capita GDP of $18,070 with savings relative to GDP at 47 per cent. Mr Gray also said the Mexican crisis had made many US investors cautious. 'Certainly the shock of Mexico has caused a setback to the mutual fund industry which has been that part concentrating on developing emerging market funds.' He said a problem was that some American investors thought Hong Kong and Mexico were in the same position. 'It is going to take some time for the man in the street to understand the profound differences between Mexico and Hong Kong.' The United States and Mexico have reached final agreement on a $20 billion loan plan to help bail out Mexico.