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SCMP Reporter

WITH the Hang Seng Index reading like an excited cardiograph, the small investor may feel somewhat befuddled as to where to invest.

  Market practitioners, however, are not ruling out equities.

  ''People should be looking at the Asian region's securities market,'' said Mr Stewart Aldroft, a director at Wardley Investment Services.

  At first glance, the answer would seem surprising in light of recent volatility, but traditional alternatives have their drawbacks, particularly in Hongkong.

  The first is inflation, with even analysts conceding that inflation presents a problem to the small investor.

  In such an environment, some of the traditional vehicles become significantly less attractive.

  Take a conservative market like bonds in the US. The US bond market is yielding returns about three per cent lower than Hongkong inflation. Not a good return for your money if you are paying living expenses in Hongkong.

  The territory also has other drawbacks. With interest rates about seven per cent lower than inflation, savings accounts quickly lose their appeal.

   Many fixed deposit accounts, which have a slightly higher return, still often yield a return of only about 5.5 per cent.

  One broker even observed that in an environment such as Hongkong's, it is better to borrow than to save. With inflation so much higher than interest, he advocates a ''buy now, pay back later'' approach.

  But assuming one would rather not spend, other alternatives exist. One option that market practitioners continue to advocate is stocks.

  Mr Andrew Au, a sales director at HG Asia dealing in Hongkong markets, points to China stocks.

  ''China will be quite determined to get more influence on the Hongkong economy. Many years ago China had very little interest in the economy. Since 1982, they have been trying to do something to get their money into Hongkong,'' said Mr Au.

  While many of the Chinese stocks are well subscribed, some are still growing and are considered to offer a good return.

  Mr Au feels China Resources Enterprises is one example of a company which has potential.

  But for those who don't have time to follow the flutterings of the market, investing through one of the close to 600 brokers in Hongkong may not be in the investors favour.

  The market has been erratic over the last few years and although analysts advocate buying at the bottom of a cycle and selling at the top, determining peaks and troughs is a difficult business.

  ''People tend to work with the benefit of hindsight,'' observed Mr Aldcroft.

  ''Time after time people buy the flavour of the month. As soon as it goes down, no one is going to tell you to sell.''   To avoid mistakes, some recommend that small investors put their money into an Asian fund which looks to regional stock markets.

  That way the investor gets the benefit of Asian stocks without the hassle of tracking the stocks' every move.

  ''It takes out some of the excitement factor,'' one broker suggested. But the returns can be good.



Regional funds offer safe haven