Henri Chen is a Hong Kong investment manager who handles small pieces of the portfolios of some of the wealthiest people in the Far East and Middle East. His four-year-old global investment firm, CHN/HK Ltd., manages $338 million in assets and is up 17.2% for the year through July 31, after a 14.9% gain in 2005.The minimum investment is $2.5 million, although the firm is not seeking any new money at this juncture.

During a 30-minute interview, Mr. Chen, an avid reader who devours at least two or three books a week, took a dim view of the stock market’s prospects.

Q. How do you see the American market between now and year–end?

A. At best, down maybe 3% to 5%, but more likely off 8% to 12%.

Why?

For very obvious reasons.

Such as?

The slowing economy. It means ready yourself for plenty of earnings shockers. Also, oil prices most certainly will remain high or go higher, which should keep inflation worries in the limelight and make the Fed a little edgy about calling it quits on rate increases.

Any other economic concerns?

Housing will punish the economy. The reports we get show the number of American homes up for sale growing sharply around the country. That tells you to expect a really significant break in the housing market, which should finally awaken consumers to the fact they’re not all billionaires and can’t live endlessly on excess spending and exploding debt.

Anything to be wary of on the global economic front?

Monetary policy is tightening around the world.That’s worrisome.

What about the Middle East?

A no-hope situation. Maybe there will be peace in the hereafter, but never in our lifetime. Many money managers I talk to in New York tell me the Middle East fighting is a tempest in a teapot as far as the market is concerned. I’m sure they’ll be telling me the same thing 10 years from now. I’m convinced diplomatic solutions can’t work, and one of my Saudi Arabian investors thinks the same way. He says as long as the current Iranian and Syrian regimes remain in place, both of which support terrorists and vehemently oppose the existence of Israel, temporary truces — and underscore the word temporary — are the best you can hope for.

What about the idea of an international peace-keeping force along the Lebanese border that could guarantee a cease–fire?

Unworkable because some Israel-haters will find a way to break it. My Saudi investor, by the way, believes the creation of such a force — which he thinks is a big if — would be the first step in America’s abandonment of its role as Israel’s principal guardian in an effort to establish in the eyes of the world a more equitable Middle East policy.

So, how do you analyze the significance of what’s going on in the Middle East and relate it to the market?

It is really not analyzable because there are too many unknowns. My best guess is the Mideast will be a continuing irritant via repeated periods of bleeding in the market in reaction to various events.

If things are so gloomy, as you suggest, how do you explain the market’s ability to weather the storm?

Where did you get the notion that all investors are Rhode scholars?

So I guess you don’t see a year–end rally.

Maybe in the North Pole, but not on Wall Street.

Suppose I tell you one of the smartest investment strategists I know is telling his clients just the opposite — namely, that the Fed will likely pause in September after raising rates again this month. And that pause, he says, should kick off a major market rally that will push the Dow (which closed yesterday at 11,242.59) to 11,500–12,000 by year–end.

That reminds me of what Abraham Lincoln once said.

Which is?

‘Tis better to be silent and be thought a fool than to speak and remove all doubt.’

Okay, you’re down on American stocks. But surely there must be something you like here. What would that be?

For now, energy, energy, and more energy.

But energy stocks, by and large, have already gone through the roof.

Why don’t you ask your Rhode scholars what they think?

Okay, which specific energy stocks do you like?

Don’t ask me about individual stocks. That’s what my clients pay me for.

How about gold?

Many clients insist on some ownership. I agree. The trend is still up, but who knows what kind of a price tag you put on fear protection?

The course of the dollar?

Ask that question of some of the world’s best currency minds, which I have done, and you will get the same answer: Down!

Globally, which stock markets offer the best buys?

China, Japan, Russia, India, and Brazil, but you have to be extremely selective.

Any particular stocks you like in those countries.

I hope you’re not having a hearing problem? Don’t ask me about individual stocks.

How do you see the Israeli market?

Israel is not going out of business. In fact, we just picked up a few Israeli stocks on weakness.

Anything else I should ask?

Which Israeli stocks did we buy?

dandordan@aol.com