'I am quite happy with my position,' he said. 'Our track record is acceptable.'

Mr Lee's Hong Kong Fund fell 17.46 per cent in the first 10 months of the year, against a 12.18 per cent drop in the Hang Seng Index. While that may be enough to bring out the bear in most investors, his fund is now ranked second of the 23 Hong Kong funds.

The fund is weighted heavily in favour of big-cap stocks, with China Mobile, Cheung Kong, Hutchison Whampoa, HSBC and the Tracker Fund as the top five holdings.

'In Hong Kong, big caps tend to outperform small caps,' Mr Lee said. 'The 10 big companies make up 70 to 80 per cent of the Hang Seng Index. In this [negative] climate, big companies do better than small companies.

'Big companies are good at making money. Companies like HSBC, Cheung Kong and Hutchison are quite fair to market shareholders. You hear stories of people who every year put their bonuses into HSBC - if they had done that for the past 20 years, they should be able to retire quite happily.'

Mr Lee is cautiously optimistic for the next year. He believes big caps are trading at fair value and even the Nasdaq, which has affected Hong Kong negatively this year, is looking more reasonable.

'Pacific Century CyberWorks has had a huge correction already, although it only makes up about 3 per cent of the Hang Seng Index,' he said.

'The other companies are not very expensive. Hutchison is not trading at a huge premium to its net asset value. HSBC and Hang Seng Bank are not expensive relative to their return on equity. Sun Hung Kai Properties is trading at a discount.'

Schroders forecast the index would trade between 13,500 and 19,000 points this year, and it has held up at about 14,000 points, leaving Mr Lee fairly confident.

'At the moment, the downside is not more than the upside,' he said. 'Schroders is one of a few companies that had a positive view of the market in May and June.

'We managed to pull back in September and adjust our holdings [ahead of a sharp correction]. Stock-pick-wise, we have done okay. We have taken some small positions, but the positions have held.'

Mr Lee acknowledged he breathed a sigh of relief when Beijing on Friday announced it would hold off until at least the end of next year plans to revise the tariff system for mobile-phone companies.

'In the short term, [this issue] has driven up the risk premium. I am happy [Beijing] is making sure that the market does not overreact. They are taking note of what the market is doing,' he said.

While Hong Kong has traditionally had a close correlation with the United States stock markets, it is likely the market will begin to take more note of what happens in China.

'In the past 16 months, Hong Kong has been very much affected by the US, because a lot of companies here are involved in the telecommunications sector and the Nasdaq has been weak,' Mr Lee said.

'In the next 24 months, China Unicom is going into the index, as are Sinopec and Bank of China. That will mean we will be more affected by China.'

With World Trade Organisation entry looming and foreign investment flowing strongly into the mainland, this is seen as a good thing.

Mr Lee believes China is in a recovery cycle while the US is at the peak. China Mobile and China Unicom are relatively expensive, but other China stocks are good value.

For Mr Lee, Hong Kong remains one of the top 10 places for investment. One factor is its tax environment. Research has shown that there is a negative correlation between high taxes and economic growth. Hong Kong's markets have clawed back some of their 1997 losses while its regional neighbours are still wallowing in the shallows. While growth is set to slow next year, it need not have a negative effect on the stock market.

His view of the property market is relatively positive, despite the drop in value of his Braemar Hill home, which he shares with his wife and daughter.

'High property prices are not necessarily good for Hong Kong,' he said. 'The trend of globalisation has meant that our prices must stay competitive.'

How does Mr Lee cope with the stress brought about by the fluctuating markets?

'I try to have a clear mind. Every one or two years, there is a bubble or a crash somewhere. Markets sometimes lose their rational function,' he said.

'At the moment, sentiment is quite poor. In the summer, it was euphoric. The public focuses on the short term. But in the long term, price must relate to the earnings capability of a stock.

'The market is probably going to be range-bound next year. It probably won't be as speculative. It will be more gradual.'

Mr Lee expects his fund to return to positive territory in the next 12 months.

'It will be next year,' he said calmly. No drama, no hype - just a certain kind of knowing.

Graphic: meet03gwz

Graphic: gwyngwz