BROKERS and fund managers in Hong Kong said they were surprised by the Morgan Stanley-S G Warburg merger deal. Both are influential financial institutions in the territory with Morgan Stanley having secured a dominant position in futures and debt-linked securities issues last year, and Warburg having aggressively built up a strong profile in equity-linked business over the past four years. Morgan Stanley employs 365 staff in Hong Kong, while Warburg has about 200. Together their operations make them one of the largest players in capital markets in Asia. A merger had been rumoured for the past few days, but Warburg staff said they expected J P Morgan would be the potential partner, and were surprised to learn it was Morgan Stanley. Ian McEvatt, chief executive of Indosuez Asset Management, said: 'It would be a colossal undertaking that will create a powerhouse. It will seriously reshape investment banking and broking worldwide.' Other managers said the move could have been forced on them because of poor profitability.