IF Hindsight hears one more company blame poor performance on slack markets in China, we are going round to hit them over the head with a rolled copy of statistics, which show that China is still one of the fastest growing emerging markets in the world. This week it was the Lai Sun group. Lim Por-yen - once described by a fellow director as the 'hardest working man in the galaxy' and a 'great Sagittarian' - and his family board managed to demonstrate that even 11 per cent gross domestic product growth in real terms was not enough for some firms. Lai Sun Garment (International) went one better. Company secretary Kwok Pun-tak said that although it might look as if North America was in the midst of one of the finest recovery periods in post-war economic history, markets were 'sluggish'. True enough, the steep rise in the price of cotton has been causing problems for low-end garment makers but it was not just margins being squeezed at Lai Sun. Turnover was down 18 per cent. There is a tiny possibility that it is not the market that is sluggish but the management. What are the chances of the major shareholder turning around and asking for performance improvements, or else. The news is only slightly better for shareholders in MKI Corp. True, the firm now looks likely to be saved by the injection of assets from Winfoong Investment, the Hong Kong-listed arm of Hong Fok of Singapore, but then the original shareholders will see their holding severely diluted. This is still rather better than what they would have ended up with if the Securities and Futures Commission went ahead with its original plan and had the whole kit and caboodle wound up - if that had happened, shareholders could count themselves lucky if they were poked in the eye with a rolled share certificate. The new shape of Newco, as MKI is provisionally to be called, has not been fully unveiled for shareholders. It is basically going to be the public-sector building arm of Winfoong. Public housing is not an especially sexy business, but with the Government still pumping dollars into improving housing conditions then there are likely to be recurrent earnings in this for some time. It would be nice if the suggestion of one investor in MKI could be followed: resume trading for one day to allow the smaller of the 10,000 investors out at 66 cents a share. Khalid Hossain and Arthur Lai Cheuk-kwan might have been persuaded to buy up all the shares. The saga of MKI is a very poor advertisement for corporate governance in Hong Kong. At first it was suggested that fraud might have been to blame for huge holes in the firm's assets. The lesson, not so much from MKI which is obviously in the innocent-blunder category, but from countless other examples seems to be: fraud is the perfect crime. Proving fraud is a tricky business. It relies on intention and how can a court tell between the real thing and incompetence? You have to do it right of course. Do not rip off the boss by fiddling expenses. Do not rip off innocents by selling them fake pills. Form a public company then simply steal the cash from the shareholders. If anyone asks you any questions, just say: 'I do not remember'. Time after time, country after country, the spivs and conmen get away with it. A person blind and deaf to gossip would have heard of firms in Hong Kong run by triads as money-laundering exercises. If Hindsight, with a history in the territory of only two years, knows about it, everyone does. The corporate crooks always seem to get away with it. One thing that would help is a change to laws on the use of tax-haven jurisdictions. What possible justification is there for a Liberian company where even the names of the directors are kept secret? As a rule of thumb, why don't we just assume that anyone who finds it necessary to use jurisdictions with such stringent secrecy laws has a good reason to keep things secret - especially from the shareholders. There are even brass plate and palm tree jurisdictions where an asset protection trust is allowed. With these, not only are the beneficiaries names secret but the contents are secret - it is a 'Get Out of Bankruptcy Free Card'. Is there an honest reason for having such a trust? The risks of being an equity investor are many, and all too often the rewards are slim. That is one of the reasons why small investors increasingly leave the job to the professional fund managers. The trouble is, how to pick the right fund and the right manager. There are a number of diametrically opposed ways of investing. First, funds can take a top down approach and try to pick a market which is going to accumulate. They can then either invest passively by tracking the index - in which case they ought to charge punters practically zero because a robot could do it - or actively, gearing up and trying to pick out performing stocks. The shame of the matter is that most funds do not, in the long term, outperform their markets. There are notable exceptions. A number of stellar performances have been turned in by Templeton and in particular the funds run by Mark Mobius. Templeton does not pick markets or economies but individual stocks on the basis of value. This week it revealed it held disclosable positions in 11 Hong Kong-listed firms. And what a bunch. The only fund Hindsight can think of to put some of these stocks in, such as CNT Group, Fortei Holdings and Great Wall Electronic, is the Dregs Sifter Fund. Their share prices have fallen down deeper than whale waste products. CNT, which owns Citibus and makes paint, has underperformed the index by 91.18 per cent since June 1991. The price has fallen 82 per cent since then. Fortei, which makes school bags, has returned 59.3 per cent since May 1990. Great Wall has lost 57 per cent since May 1991. The Hindsight guide to fundamentals includes: in Hong Kong, if a firm has an incredibly low price-earnings ratio (PE), there is probably a very good reason. Hong Kong investors are smart - if a stock is a bargain, it gets snapped up. But, they are not too worried about long-term prospects either - if they see a speculative reason to jump, then they will. Surely there must be a point when a stock is so unfashionable it represents good value? Not necessarily. And the same applies to markets. Just because Hong Kong is tending towards the lower end of historical market PE, that is not in any way a reason why the market should not drop further. If you want to make money, take Hindsight's advice and stick to quality firms with real long-term prospects. But, an added advantage of building big stakes in small stocks is that when your stake passes 10 per cent and you have to declare it, the price might be driven up on 'me too' buying.