Red chips and H shares are more attractive than other Hong Kong stocks in the longer term because they have the potential to draw strength from faster growth in the mainland's economy, according to Socgen-Crosby Securities (HK). China research associate director Raymond Jook said investors should seek refuge in defensive stocks - those which can better weather the storm and rebound quicker. These stocks should have a net cash position or low gearing, a low exposure to interest rate increases, a prudent investment strategy with less involvement in the Hong Kong stock market, less reliance on asset injections, more visible core earnings growth and a strong recurrent income base. Stocks picked based on this criteria include red chips such as China Foods, China Resources, Ng Fung Hong, Shanghai Industrial and Top Glory. B shares Zhejiang Southeast Electric and Heilongjiang Electric were picked and H shares Guangdong Kelon and Qingling Motors and N share Huaneng Power. Mr Jook said there was a potential threat in the long run for red chips which had bought shares in other Hong Kong-listed companies whose market value was reduced during the recent market turmoil. 'Fortunately, most red chips will treat their investments . . . as associates and hence the market prices do not affect their bottom lines,' he said. If the market prices of these investments were below the purchase price over the longer term, the losses would be reflected in the profit and loss accounts. China Everbright and Cosco Pacific were the two biggest losers in book value on the closing prices on October 29. China Everbright showed a book loss of about $682 million on its 20.6 per cent stake in Kumagai Gumi, a book loss of about $227 million on its 20 per cent stake in International Bank of Asia and a book loss of $134 million on a 20 per cent interest in Theme International. Cosco Pacific ended up with a book loss of $1.2 billion from its $2 billion deal for a 20 per cent interest in Liu Chong Hing Bank. The purchase price was considered high at the time. Those investments now appear to have been made at the wrong times and at the wrong prices, Mr Jook said. Of all red chips the brokerage covered, Chinese Overseas Land would be hardest hit by the falling property prices because it derived about 50 per cent of its profit from Hong Kong property development. China Resources secured about 27 per cent of its profit for next year from the sales of the first phase of Villa Espanada. Other investments by the company should also help fuel earnings per share growth by 25 per cent next year. This was even if property prices fell 30 per cent.