With New Management, Hong Kong Still Top Bet

LONDON -- The sun may be setting on the British Empire in Hong Kong in a month, but foreign investors foresee a rosy future under China.

"I think it will continue to be a real winner," said Richard Farrell of Guinness Flight Hambro.

He, like other fund managers, echoes the market view that Hong Kong under new management is still a sound bet.

"The combination of southern China taken with Hong Kong is potentially the jewel in the crown of Asia," he said of the teeming metropolis being handed back to Beijing on June 30 after 156 years of British rule.

Farrell argued there was a winning equation -- the low wages and relatively inexpensive real estate in southern China coupled with the entrepreneurial skills of the Hong Kong Chinese and the colony's sophisticated infrastructure.

"If this was a separate nation, it would have the same critical mass as France. We are talking about a significant economic force," he said. Farrell, like other fund managers, fears that real estate shortages in Hong Kong itself could be a problem. "The supply on the horizon is not awfully good," he said.

Richard Murckart, investment director at Edinburgh Fund Managers, adopted an equally upbeat position -- but also cautioned about soaring property prices.

"There are a lot of concerns and we have seen quite a few mutterings on the subject of property. They are trying to put a lid on it. Because of that, you have good days and bad days on the market," he said.

Although Murckart forecasts "some major hiccups" along the way, he said Chinese self-interest will lend a powerful motivation.

"At the end of the day they know it is their lifeline for the next five to 10 years until they can establish alternative routes like Shanghai," he said.

Dudley Lord of Axa Equity and Law Investment is the first to admit there will be troughs and peaks. But he argued that economic confidence is soundly based in Hong Kong.

"At the moment there is a degree of equanimity. It is sounder in economic terms than the rest of Asia," he said, then added his own blunt assessment of how communist China views one of the most successful capitalist money-making machines in the world.

"They don't understand how it works, so they don't want to tinker with it."