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Published on March 15, 2008

But it seems that China's record-high inflation has attracted more attention.

Hong Kong is facing its biggest health scare since the Sars scare in 2003. A flu outbreak has affected 742 children in 84 schools in recent weeks, and three of them have died.

Citibank's Emerging Markets Daily Asian-edition report on Thursday said the chance of a flu epidemic was remote but that the potential economic damage was real. Investors, therefore, cannot afford to ignore this.

However, the risk is still not so high or imminent that investors must cut exposure to sectors that could be most affected.

But China seems to face bigger risks, Citibank said. Instead of worrying about the flu outbreak, investors could be better advised to pay more attention to other dangers.

For example, China's rising inflation may trigger a new round of policy tightening.

"We, found it was Chinese H shares rather than those of Hong Kong firms that contributed most to the fall in Hang Seng Indexes in recent days. After the school closures in Hong Kong, H shares plunged 6.1 per cent on Thursday, while the Hang Seng HK Composite Index fell only 3.2 per cent," Citibank said in its report.

H shares are incorporated in China and traded on the Hong Kong Stock Exchange.

In February, China's inflation rate rose 8.7 per cent to an 11-year high, compared with a 2.7-per-cent rise in the same month last year.

So, the flu seems not to be as hot an issue as inflation.

jiwamol@nationgroup.com

The Nation