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Jake Van Der Kamp

Asset management, which accounted for the largest share of the combined fund management business, recorded an impressive growth rate of 27.5 per cent in 2006.

Securities and Futures Commission,

News release, July 19

Ain't it great how fast Hong Kong is growing in the fund management business? Going up by leaps and bounds, I'm telling you. The professionals are just falling over themselves to run money here, which just goes to show  what lovable people we have over at the SFC. Who says they scare money away?

Ahh ... one problem; I keep up a spreadsheet in which I track the overall performance, market capitalisation weighted, of Asian stock markets in US dollar terms. This spreadsheet tells me that Asian equities were up 27.8 per cent on average in 2006.

My sample admittedly does not include Japan but then very little money allocated to the Japanese market is run from Hong Kong anyway. My sample also takes account only of B shares in the mainland's markets because, technically, this is all that we are really permitted to play with in Hong Kong.

Cut it or chop it as you will, it looks like this big increase in asset management was probably the result only of share prices going up across the region and not really of new fund management business coming here.

Now I wonder just what the SFC would say if the shoe were  on the other foot and a listing sponsor played games with numbers this way in a prospectus.

Mainland economic growth surged to an 11-year high in the second quarter and inflation jumped to a near three-year high last month, strengthening expectations of a fresh round of measures to cool the economy.

SCMP, July 20

Somehow the news that the mainland economy registered an 11.5 per cent growth rate in the second quarter has lost its amazement value. For the past 15 years that growth rate has never been less than 7 per cent and has averaged 10 per cent.

But now notice something from the first chart. Up to about four years ago the growth of electricity production in the mainland was slower than the growth of gross domestic product. Since that time electricity production has risen much faster.

In one way this can be taken as confirmation that these high GDP growth rates are fact. Change in electricity production is about the best overall proxy you can find for GDP growth.

But think again about how high these numbers have gone. The mainland's electricity production has doubled in the space of just five years. This may have been seen before in a single city or district, but for a country of 1.3 billion people it is highly unusual. Something has gone off the rails here.

Look at it another way from the evidence of the second chart. Mainland  power generation has risen so much recently that it now stands at 73 per cent of power generation in all of  the United States. Yet the US economy is five times as large as the mainland's.

This is good evidence of gross mainland power inefficiency, of enormous power wastage, and, once again, such trends in electricity are a good proxy for what is happening in the  economy.

They indicate that consumers do not really care how much power they use, either because  power is heavily subsidised, or because business is booming so much that it really doesn't seem to matter.

This sort of thinking is a classic indicator of overheating. People come to a stage where they don't care, where high cost does not deter them because there is the still the prospect of even higher earnings to be made. It should be seen as a warning of a closely impending reversal of fortunes but it rarely is.

Okay, tell me to change my name to Jeremiah. Perhaps I'll do it. But I think I have reason as good as the original one to say that someone has some comeuppance a-comin'.



Playing with numbers in fund management