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SCMP Reporter

IT is important to do some homework before plunging into the small-cap market, experts warn.

  Vital factors to consider include the track record of the companies and whether there is enough liquidity in the shares to ensure easy entry and exit.

  They also recommend looking at the cycle of the industry and the commitment of the management.

  Stockbrokers and market watchers pointed out a few small caps worth considering.

  Simon Lee, senior fund manager at Sun Hung Kai fund management, said the smaller companies he favoured were Hualing Holdings and Guangnan Holdings.

  Hualing is an industrial company involved in the manufacture and sale of refrigerators in China. Mr Lee said: 'Sales are okay. I see the company and I like its situation.'   Of Guangnan Holdings, an importer of fresh food from Guangdong province, he said: 'Basically a very stable stock. It is currently benefiting from increased buying interest.'   Howard Gorges, director with South China Brokerage, said the small cap he liked best was World Houseware, a manufacturer of household products. 'It is an efficient producer in an industry where demand is unlikely to slacken,' he said.

  He also favoured China Merchants China Direct Investment, a Chinese government-backed investment company.

  'It will benefit from the easing of the Chinese economy and its association with a strong parent,' he said.

  Robert Lewis, research analyst with James Capel Asia, said he favoured a number of the smaller electronic counters.

  'The big personal computer boom in the US will benefit these stocks on a global basis, and Hong Kong as a gateway to China will benefit disproportionately,' he said.

  He said he liked Elec & Eltek International, a manufacturer of electronic products, and QPL International, a maker of leadframes and circuit boards.

  Mark Gallagher, research manager with Dao Heng Securities, said he favoured electronic counters as these had benefited from the rally in US technology stocks.

  One he recommended was Legend Holdings, a seller and distributor of computers. 'It is benefiting from the booming demand for electronic components,' he said. 'It is really the only computer company in Hong Kong.'   He also liked a stock from the media sector, Culturecom, a comic producer that has diversified into newspapers and journals.

  'It is interesting for the longer term, its margins have great room for improvement and it is not dependent on advertising revenue,' he said.

  P J King of Smith New Court said he liked Chaifa Holdings and Nam Hing Holdings. Chaifa holds licences for the distribution of Playboy brand-name goods in Hong Kong, China and Macau.

  Mr King said: 'They have done well but they have more to do. Rumour has it they might be about to get some new franchises; one of them could be McDonald's.'   Nam Hing is a producer of copper clad laminates for use in electrical and electronic products.

  'They are about to sign a joint venture with a German company,' he said. 'This will give them access to the European market.' 



Experts tip their stocks to watch