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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

NOVEMBER 12, 1999 VOL. 25 NO. 45

How to Save Hong Kong
A fund manager on restoring competitiveness

What a week for Hong Kong. Not only do Mickey and Minnie Mouse pay a visit to Government House, but long queues form outside banks on the first day the TraHK - the Hong Kong index tracker fund - is offered to the public. Add to these the decision by Morgan Stanley to temporarily defer the inclusion of Malaysia and to give a huge weighting increase to Taiwan in its global MSCI benchmark indices. That keeps Hong Kong's weighting in the indices stable, instead of reducing it. Even the property market is attracting interest again. Husan Pai is a senior portfolio manager at Indocam Asia, the Asian asset-management affiliate of France's financial giant Credit Agricole in Hong Kong. He spoke with Asiaweek's Assif Shameen.

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Problems could derail Bangkok's Skytrain

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The continuing contest to be Manila's No. 1 bank

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Indocam Asia's Husan Pai on how to save Hong Kong

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Can Mickey Mouse save Hong Kong?
It's not a question of some comic characters rescuing an economy. Hong Kong needs to diversify beyond property, construction and financial services, and tourism is an area that had been neglected in the past. One of Hong Kong's problems has been a perception that it is not diversified and competitive. Winning the right to build the Disney theme park will help change perceptions.

Is Hong Kong turning around?
Clearly, it is no longer in a recession. Economic activity has been picking up. But compare Hong Kong, which has just managed to show very minimal growth, with other recovering economies like Korea, which actually might grow nearly 9% this year. Even before the Crisis, while economies like Singapore were growing 7% to 8% a year, Hong Kong was expanding just 5%. Singapore still has a healthy manufacturing sector - it has research and development facilities - whereas Hong Kong has very little manufacturing left. Everything has moved across the border to China. Most other countries in Asia have benefited from cheaper currencies. Hong Kong has not because of its currency peg with the U.S. dollar. Other cities have improved their infrastructure, they have cost advantages. Going forward, we need to consider what will drive Hong Kong's growth. The world has changed dramatically in the last few years and what worked for Hong Kong ten years ago might not work now. Hong Kong needs to decide what its role will be in the global economy in the 21st century. Can it be an international financial center? Can it be a regional hub? Will it just be a service center for China or northeast Asia or for all of Asia?

Is the TraHK positive for Hong Kong?
The government is trying to make the best of the situation. Last year, the stock market was being sold down heavily and there was pressure on the peg. The government intervened and bought a lot of shares. The Crisis is over, the market has gone up, but the government is still holding all these shares. So it has come up with a scheme to sell in such a way that it doesn't flood the market. Retail investors are being given an incentive to hold on to the shares. Government will also control the supply of the tracker fund stocks. There is the Mandatory Provident Fund scheme coming through in a year's time. That will improve savings and investment.

What do you make of the cyber-stock mania?
There is no denying that the Internet and e-commerce is the wave of the future. But announcing that a property company will have this cyber venture or that doesn't change the fact that it is still a property company. Just by adding dotcom or cyber to your name doesn't mean anything. The Hong Kong government is now taking a pro-active approach to push ahead in multimedia, Internet, e-commerce and high technology areas. But the effects of this will not be felt for several years. While there are a few companies like Pacific Century CyberWorks that have a clear strategy, many others are just taking advantage of the hype. What Hong Kong needs to do is put in place a comprehensive strategy for the multimedia and Internet sectors, so that it is not just a few companies developing portals that are supposed to drive the Hong Kong economy.

What about property?
The days when developers have 60% gross profit margins are gone forever. First, Hong Kong needs to be globally competitive and that means if office rentals are too high companies will relocate to Shanghai or Singapore. It is clear the government wants to build more public housing. It wants to increase the home ownership ratio to 80% or so - closer to Singapore's. Given a low-inflation environment, low interest rates and the need to be competitive coupled with the government stated policy on housing, it seems to me property prices over the next ten years won't go up as fast as they did over the past ten years.

Which stocks do you favor?
We like globally competitive companies. Take Hutchison Whampoa. It is a global player in telecommunications and container terminals. It now is the biggest shareholder in Mannesmann, the German cellular phone giant. We also like companies like retailer Esprit International, with its global franchise, and Giordano, which has a regional retailing franchise. And HSBC. It is a truly global financial institution that is adding value, growing in Asia, the U.S. and Europe. Hong Kong companies need to become regional and global players instead of just concentrating on Hong Kong and China.

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