MAYBE it is hard to have much sympathy. So what if Li Ka-shing's personal wealth has been slashed, Henderson chairman Lee Shau-kee has been toppled from his ranking in Forbes magazine's list of richest men, and even the Government - one of the world's richest - has seen its cash pile shaved following its dalliance on the stock market? Unfortunately, there are ramifications from these paper losses for smaller investors. Lower share prices and a subdued stock market make it difficult to raise fresh equity (witness the thin number of initial public offerings this year), making expansion a problem. In today's market, this is exacerbated by the credit crunch: fewer banks are lending than ever (syndicated lending this year is expected to be less than one-third of last year's US$156 billion). Companies that do well out of this scenario are those which are cash rich. For the rest, more desperate measures are called for: raising costlier bank loans (such as Wharf), or selling down property developments earmarked for rent in order to boost cash flow (Sino Land). If companies find it difficult, or expensive, to grow, they may choose to batten down the hatches. This means earnings growth is unlikely, and makes the company's shares even less attractive. In Hong Kong, this is a 'double-whammy' for share investors. British and United States companies, wary of the legions of mutual fund holders, are loathe to cut dividends. This means even when earnings fall, they will try to hold or even lift dividends - as did, for example, London-listed HSBC Holdings. The bank's example is not one that has been widely copied: Cheung Kong, Hutchison Whampoa, Swire Pacific and Cathay Pacific all cut their dividend payouts at the interim stage this year. The ripples do not stop with the companies. Many, especially second and third liners, have put up the same falling stock to secure their loans with banks. This security, or collateral, is now worth a fraction of what it was. In many cases this means it is insufficient to support their loans, and banks, wary of creating a black hole, are not hesitating to call these loans in. For the companies, these calls - which often get to writ stage - mean speedy contraction in order to raise funds, as evidenced by Theme's mass closure of shops after Daiwa began chasing payment. The banks are eager to stamp on loans that look as if they might spiral out of control to avoid building up their own portfolios of bad debts. These non-performing loans are growing, and analysts believe the proportion could rise to 8-10 per cent of total loans. Again, the result is weaker earnings, and thus weaker prospects that share prices will rise. Analysts estimate an industry-wide proportion of even 8 per cent would mean losses at the worst-hit banks, typically the smaller ones. Where does that leave retail investors? The two traditional repositories for wealth - stocks and property - show little promise. Losses to date have been steep: KC Kwok, economist at Standard Chartered Bank, estimates the loss in property and stock values from July last year to June at HK$4.3 trillion, or about $2 million for every household. Clearly, this figure includes commercial ownership. But on the stock market, where about $2.37 trillion has been wiped off capitalisation since August, about half the losses or more have fallen on retail investors' shoulders, most estimates say. This still comes to $365,384 per person, although the damage would have been more contained: at the end of last year, 16 per cent of Hong Kong adults were stock investors, according to the stock exchange, compared with 10 per cent in 1994. Some of that money will have been recouped before the big falls took effect, and the question facing retail investors now is where to put it? The Hong Kong stock market carries an added burden: the estimated US$14 billion overhang of Government-accumulated shares which, at some point, will have to be released back into the market. That will send prices plunging. Meanwhile, the fundamental picture remains bleak: the combination of tight credit and a recessionary economy means there will be little meaningful expansion of Hong Kong Inc this year - or next - some analysts believe. Mutual funds, which are more diversified, are also a patchy bet. Malaysia's sudden imposition of capital controls has sent fund managers of Asian funds into a frenzy. Perhaps retail investors should take the cue from successful corporates: in this environment, cash is king, and the deposit rates available at some of the smaller banks may well prove to be some of the most tempting offers around.