Two Funds Offer Chance to Bet on Hong Kong Stocks

Hong Kong’s stock market has been one of the world’s strongest this year--up 35% since Dec. 31, as measured by the benchmark Hang Seng index. That’s more than twice the 14% rise in the Dow Jones industrials.

Yet the average American investor who wants to play Hong Kong stocks has mostly been shut out. In the 1980s, Wall Street created “single-country” stock funds for almost all of the Asian markets, from Malaysia to South Korea. But Hong Kong never rated high enough to get its own stock fund for small investors here.

Even so, if you want to make a bet on Hong Kong’s potentially very bright future, you do have a couple of choices:

* The San Francisco-based Newport Tiger stock mutual fund owns more Hong Kong stocks than anything else. The $24-million fund invests exclusively in the smaller Far East stock markets (it avoids Japan). The fund now has 38% of its assets in Hong Kong shares, 22% in Malaysia, 20% in Singapore and 7% in Thailand.

* The Asia Pacific Fund, a Hong Kong-based investment company that trades on the New York Stock Exchange, owns about $120 million worth of stocks in the Far East markets. Like the Newport Tiger fund, Asia Pacific avoids Japan. Its investment mix is similar to Newport’s, with Hong Kong making up about 38% of assets, Singapore 21%, Malaysia 17% and South Korea 4%.

So far this year, Newport Tiger is up about 21%, versus about 13% for the average Pacific Region mutual fund, according to fund-tracker Lipper Analytical Services Inc. The Asia Pacific fund’s stock price is up 33% year-to-date.

Both funds owe their big gains this year to Hong Kong. The colony’s stocks soared with other world markets when the Persian Gulf crisis ended. More important, investors seem to be shaking off their worries about Hong Kong’s future. China gains control of Hong Kong from Britain in 1997, and for a long time that has spooked investors.

But in July, China and Britain agreed on one of the biggest issues involving the colony’s future: a new airport. China gained a strong hand in Hong Kong’s future six years early by agreeing to the airport plan, yet that proved to be a confidence-booster for the stock market rather than a negative. The $16-billion airport will help drive the local economy during the construction phase and when it opens (by increasing travel and trade), experts say.

Despite the Hong Kong market’s surge to record heights, however, most stocks there still trade for just 10 to 14 times their most recent annualized earnings per share. Compare that to the average U.S. stock, selling for about 18 times earnings.

Mark Headley, vice president of the Newport Tiger fund, believes that global investors still are missing the boat on Hong Kong stocks by pricing them well below other world stocks. While China’s 1997 takeover continues to worry some investors, “We feel that China is a reason to get excited about Hong Kong,” Headley says.

As China’s Guangdong province (adjacent to Hong Kong) opens further to Hong Kong firms, the cheap labor supply should be a boon, Headley says. “The ability of Hong Kong companies to get in there and manufacture at low prices will really let them move back into competitiveness” with other Far East rivals, he says.

Headley also believes that Hong Kong’s stock prices simply don’t reflect the companies’ wily ability to survive and prosper through the years. “These are companies with low debt, good managements and long track records,” he says. The Newport fund’s holdings include such names as Hang Seng Bank, Hong Kong Telecom, Hong Kong Electric and Yaohan International Caterers.

Newport’s bet is that Hong Kong stocks’ relatively low price-to-earnings ratios are going to draw more investor attention as other stock markets worldwide get more expensive, and as investors lose their remaining concerns about China’s takeover of the colony.

An advantage for American investors: Because Hong Kong’s currency moves in sync with the dollar, you needn’t worry about dollar fluctuations affecting your returns on Hong Kong stocks. In contrast, “currency risk” is a big concern for Americans buying European stocks.

The Newport Tiger fund has a $1,000 minimum investment and a 5% sales charge. For information, call (800) 776-5455. Because the Asia Pacific Fund trades on the NYSE, it must be purchased via a broker, like any other stock. For literature on the fund, call (800) 451-6788.

Briefly: Was it just a strange twist of fate, or manifest destiny? The cover of BankAmerica Corp.’s annual report this year features a stunning skyline photo not of its hometown of San Francisco, but of Los Angeles--home of Security Pacific Corp., which BankAmerica this week agreed to purchase for $4.5 billion. Security’s annual report has no cover photo at all; it’s just sturdy blue paper, perhaps befitting the bank’s sober outlook.

Hong Kong’s Hot Market The Hong Kong stock market has roared back to life, making it one of the best-performing world markets so far this year. Hang Seng index, monthly close (except latest) Aug. 4,073 Source: Investor’s Handbook