SBC Warburg Dillon Read has cut back its Hong Kong allocation in its regional equity portfolio as the economy slips into recession. The company clipped Hong Kong's weighting by three percentage points to 29 per cent, while boosting South Korea's weighting by two points to 8 per cent and Thailand's by one point to 4 per cent. 'Our market-risk model puts fair value at 7,900 points [on the Hang Seng Index],' it said. 'A recession this year . . . and an anaemic recovery in 1999 leave Hong Kong with undiscounted earnings risk.' Over the year, SBC Warburg said the Hong Kong economy would contract 1 per cent, down from its previous estimate of 2.2 per cent growth. 'We prefer to allocate some of our money to IMF-adherent crisis countries of Korea and Thailand, where economies remain desperately weak but much more of this seems priced into equities after sharp sell-offs since March,' it said.