Personal Finance: The art of self-defence for investors

We did not have to wait too long for a sharp reminder that Asian markets are a long way from having put last year's problems behind them. Hong Kong has had a very uncomfortable week as fears of more devaluation, corporate crashes and banking defaults gathered.

It is still remarkable how little knock-on effect this has had in developed markets. It would not do to exaggerate the effects but there will be some more direct consequences.

It is probably easier to pick the stocks and sectors to avoid rather than those which look certain to do well. Any business with exposure to the Far East looks likely to have a tough time and should be expunged from investment managers' portfolios. But you can add those companies which could be disadvantaged by cheap Asian imports in this country to the list.

I remain convinced that it will be right to be defensive during the months ahead. What exactly is a defensive sector? Well, it is one which might be termed in a raging bull market as being unexciting. In particular, those businesses and industries largely focussed on the domestic market are likely to have those defensive qualities that investment managers will be looking for in 1998.

Aside from the fact that the strength of sterling has made the translation of overseas profits less attractive, there will be many exporters which, having hedged their position for 1997, will find themselves more exposed to an expensive currency this year.

Among the traditionally defensive sectors, utilities and food retailers feature. It has not always been plain sailing for the food retailers, given that they have reached virtual saturation in their traditional markets. Personally, I would prefer utilities, despite possible regulatory interference. The two Scottish generators, ScottishPower and Scottish Hydro look good value, while United Utilities and Anglian Water also feature on our buy list.

Banks are also a defensive sector - at least, those not exposed to Asian loans. Corporate activity seems set to continue, while the ability to cut costs out of these operations is considerable. Despite their good performance last year, companies like Abbey National, Bank of Scotland and Barclays should feature in any diversified portfolio.

Then there are the brewers. Again, they tend to be a fairly domestically orientated, although Bass recently announced an expansion of its hotel chain into Australia. If it is just UK exposure you are looking for, Whitbread seems the company, but Scottish & Newcastle also looks good value, although much depends on whether its Center Parcs operation in continental Europe starts to benefit from increased consumer expenditure.

Brian Tora is chairman of the Greig Middleton investment strategy committee.