IT is reaching the stage in the latest Hongkong bull run where it is becoming increasingly difficult to find a stock that hasn't doubled in price. Buying smaller companies at this stage requires confidence in the outcome of both the MFN debate and the Beijing talks. But, assuming an optimistic temperament, Li & Fung still looks attractive. The company was listed in July last year at $2.20, and has fared well, rising to its present trading price of $3.30. However, it represents a very attractive play on the recovery of the US and European economies, without an unattractive China-style rating. Li & Fung is a diversified trading company, sourcing textiles, fashion accessories, plastics, handicrafts and sporting goods from manufacturing bases such as China, Hongkong and South Korea, and selling these goods primarily to customers in the United States. It was attractively priced at the flotation stage, and has done little more than perform in line with the movements of the stock market since then. However, since its flotation the textiles sector has seen evidence of a strong recovery in garment sales to the US, which accounted for 71 per cent of Li & Fung's sales in 1991. The company is forecast to return a profit of $125 million for the 1992 fiscal year, according to its prospectus, a result which would put its shares on a price-earnings multiple of 12. The trading business might be considered sufficiently volatile to justify this rating, but the management has proven its ability by managing to sustain growth during the recent recession. At the interim stage it reported that ''the group's export trading business surged ahead by over 50 per cent'' compared with 1991 - a trend which should continue. Morgan Grenfell Asia Securities is forecasting net profit of $158 million for 1993, putting the shares on an attractive current year PE of 10.4 and a yield of 6.1 per cent. Given the upcoming MFN debate, there might be concerns over the impact of an unfavourable decision. Whatever the outcome there will be no effect on China-sourced sales until June 1994, and since the group sources less than 20 per cent of its products from China, it would be unlikely to have difficulty finding alternative suppliers in the intervening period. In the meantime, the devaluation of the renminbi is making China-sourced products even more attractive, and if MFN goes through smoothly, it will be able to increase sales from the cheapest production source in the region, thereby further enhancing profit margins. The margins have been improved through building up its own brand names, and it has taken minority stakes in overseas distributors to ensure a market for these products, in addition to acting as agent for numerous chain stores. Li & Fung is cash-rich, with net cash of around $150 million, putting it in a strong position to benefit from the economic upturn. It recently formed a $115 million China investment fund, for developing and managing industrial estates in the Pearl River delta. It has brought in partners from the garment industry, and would benefit from utilising the estates for its own trading business while cashing in on land sales. Morgan Grenfell is forecasting the growth track to continue in 1994, with the shares on a PE of 8.7; this offers substantial upside potential for the shares.