Baring Asset Management strategic policy group chairman James Williams has called on finance professionals to restore their battered credibility in the wake of the Enron scandal. All professionals in the financial community - fund managers included - are 'under a bit of a cloud' thanks to their failure to pick the off-balance sheet trickery, which toppled industry giants like Enron and Arthur Andersen. Investor trust had already been shaken over the past two years because of the dotcom crash, Mr Williams said in Hong Kong this week. 'Many private investors, and particularly people in America who used equity markets to save for pensions, have been very hard done by by many people in the finance industry, and quite frankly, people have to pay attention to that,' he said. 'I think there is a job to be done to restore credibility more generally.' After the Enron scandal, Mr Williams said Baring had doubled their efforts to make sure they knew and understood everything about a company before they invested: 'Even if it's a household name.' It means the financial community is going through one of its periodic 'crises of confidence'; reminding Mr Williams of articles in respected journals in the 1970s which declared 'the cult of equity is dead'. 'I think this crisis of confidence will pass, it's not necessarily going to pass immediately, but I think this time next year we'll be talking about the same subjects against a very, very much more favourable background.' These scandals were in fact the 'various aftershocks' from the huge boom in shares and stocks over the past two years, he said. This boom caused the 'relaxation' of accounting standards and of the firewalls meant to separate investment bankers from analysts in big Wall Street and investment banks, he said. Litigation against the Wall Street banks would also heighten this sense of investor distrust. However, Mr Williams said he had no problem with chief executive officers of listed firms being rewarded relative to the firms' share performance. Some have argued for the capping of CEOs' pay or de-linking them from the company's stock market performance after the Enron scandal. 'Where it all goes wrong is where somewhere there is a formula included allowing the CEO to rip off the company without creating the value. Mr Williams said listed companies would now go to the other reporting extreme and 'put all the bad news out in front of us'. 'This has tended to make investors very risk-adverse, and I don't think we've gone very far in this process yet,' he said. 'For example, there is still a lot to come out of the Nasdaq, it's down two-thirds from its peak and a lot of stocks are down 90 per cent. I think they're all hoping for a recovery and I don't think it's going to come.' More conservative investors will go back to the basics and look for companies without too much debt and a lot of liquidity, companies which had transparent accounts and paid dividends. Dividends have become unfashionable in the US because investors have failed to ask for them. But they are still common practice in Hong Kong, Australia and Britain. In the short term, these nervy investors would put more money in bonds than they had before, and also in gold, he said. However, this conservative behaviour would put a solid foundation under markets for a 7 per cent to 8 per cent annual growth, he said, compared with the average 13 per cent growth over the past 20 years. 'I will certainly be committing very long-term money today. Certainly I like stocks in Hong Kong, in the UK, and some of the more conservative stocks in the US,' Mr Williams said. 'They may not make a lot of money in the next six to nine months, but with inflation very low and interest rates remaining low . . . we think there will be some growth.' Mr Williams said the global slowdown was unusual because it had not been caused by lack of demand, as was usually the case. 'It was due to too much supply of everything . . . which makes me think most areas in most countries will have absolutely no pricing power at all,' he said. Service producers like airlines and hotels were likely to see prices fall further than rise, he said. 'Companies are going to find this a very tough environment in which to make profits,' he warned. Another big risk to the recovery of profits was China's ability to get 'very cheap and readily available credit' to set up manufacturing companies. This would create new capacity, which would cause problems not only in Asia but in the rest of the world. 'This will create a competitive environment unlike anything most business people have seen in their lifetimes,' he said. Mr Williams said the US market was now a 'quite expensive market and a difficult investment environment'. The companies which make up the S&P-500 are trading at a price to earnings multiple of about 25 times this year's earnings and about 22 times next year's earnings. 'This is quite expensive when a lot of companies are really struggling,' Mr Williams said. While the reward from stable assets like bonds or bank deposits are the lowest they have been in 25 years, there is not the potentially higher returns being offered for the high risk of equities at the moment. However, regional companies, recovering from the Asian financial crisis, are in much better shape than they were four or five years ago, especially as markets like Korea and Taiwan have been starved of capital and forced to use it more efficiently. 'They were not allowed to indulge in the level of excess seen in the US,' he said. Mr Williams noted that the risk in Hong Kong's stock market was well priced in. 'I think in the next couple of years this market will probably outperform other global markets.'