The Malaysian Government's recent moves to tighten capital controls in its financial markets has prompted Hong Kong's fund-management community to develop a defence strategy. The Hong Kong Investment Funds Association (IFA) yesterday said it had asked the Securities and Futures Commission as well as Malaysian financial authorities for clarification on the new controls. It said these measures could have profound impact on local investors. 'Our objective is to ensure that the methods adopted will be in the best interest of investors,' IFA chairman Desmond Chan Kwok-kit said. Since Malaysian Prime Minister Mahathir Mohamad announced the new regulations last week, 10 funds investing in Malaysia and Singapore have suspended the trading of their units. The funds range in size from a few million US dollars to between US$10 million and $20 million. The new Malaysian curbs on capital prohibit the removal from the country of funds that have been invested less than one year. Mr Chan conceded it was not surprising that some governments had decided to take such action to stabilise their financial markets, given the recent market conditions. 'From an investment manager's perspective, the focus that we put on in determining global asset-allocation strategy is the country's fundamentals.' That meant analysing a country's corporate-earnings growth, interest-rate movement and other main economic indicators, as well as the value of different asset classes. Mr Chan refused to comment directly on whether measures taken by the Hong Kong Government to counter short selling in the SAR were appropriate. He said the IFA represented about 50 companies with differing views on market intervention. However, he added: 'Fund managers are normally attracted to markets which allow free flows of capital and have a sound regulatory framework that cannot only protect investor interest but also allow sufficient flexibility to facilitate market development.'