Stable hort-term outlook for markets<\/p>\n
SINGAPORE (AFP): Asia's economic crisis enters its 16th month
\non Monday with analysts expecting regional financial market
\nstability at least until the New Year. But the long-term picture
\nremains uncertain.<\/p>\n
Share prices and currencies in the region have recovered
\nsubstantially in recent weeks on the back of a stronger yen and
\nlower interest rates while speculators have retreated to the
\nsidelines for a much-needed breather.<\/p>\n
\"I'm bullish on Asia short term, with virtual cycles of
\nfalling interest rates, rising equity markets and forex (foreign
\nexchange) to continue till the end of year,\" said Vincent Low,
\nfixed income strategist at Merrill Lynch.<\/p>\n
Low noted that short-term rates -- powerful drivers of equity
\nmarkets -- in Thailand, Singapore and Hong Kong had fallen below
\npre-crisis levels and the extra liquidity which this would create
\nwas positive for markets.<\/p>\n
But he was cautious about the long-term picture for the
\nregion.<\/p>\n
\"This is primarily because the very strength that is causing
\nthe (market) rally in the last few months will turn negative for
\nAsia in 1999 if the (October) U.S. interest rate cuts were
\nsymptomatic of financial sector fragility,\" Low said.<\/p>\n
Trouble would brew also if the yen strength had been caused by
\nhedge funds unwinding short-term positions to cover emerging
\nmarkets losses elsewhere, he said.<\/p>\n
Asia's economic crisis was triggered on July 2, 1997 with the
\nde facto devaluation of the Thai baht. That led to a stock and
\ncurrency meltdown together with a collapse of real estate prices
\nand a banking crisis.<\/p>\n
After plumbing lows at the end of August this year, Asian
\nequities and currencies have risen by about 30 to 40 percent
\nduring what one analyst called the current bullish interlude.<\/p>\n
ANZ Investment Bank head of Asian markets research Daniel Lian
\nforecast the present rally would persist into January with \"at
\nleast another 20 to 25 percent upside\" in most Asian equities and
\n\"some five to 10 percent upside\" in most Asian currencies.<\/p>\n
\"As long as Brazil and Latin American markets do not collapse
\nin a major fashion like Russia, flows of international capital
\ninto Asia should intensify in coming months,\" Lian said.<\/p>\n
Singapore and Hong Kong stocks last week scaled levels unseen
\nfor five to six months while Thailand's stock exchange faced its
\nbusiest period in eight months.<\/p>\n
The Thai baht is riding on a 12-month high against the U.S.
\ndollar, the Philippine peso and Indonesian rupiah are at nine-
\nmonth highs, the Taiwan dollar at an eight-month high, the
\nSingapore dollar at a six-month high and the South Korean won at
\na three-month high.<\/p>\n
Thio Chin Loo, currency strategist at Banque Paribas, said
\namid the bullish market scenario for the short term, \"I don't
\nexpect speculative activity to pick up again which means domestic
\nplayers will continue to drive Asian currencies higher.<\/p>\n
\"They may overshoot a bit in the last wave of unwinding before
\nfurther weakness sets in,\" she cautioned.<\/p>\n
She said the U.S. dollar could remain depressed by mid-term
\ncongressional elections on Tuesday which could refocus attention
\nto possible impeachment proceedings against President Bill
\nClinton over his affair with White House intern Monica Lewinsky.<\/p>\n
Fong Cheng Hong, regional analyst at Nomura investment house,
\nsaid foreign exchange stability would be the key to bringing back
\ninvestors to Asia as well redressing the debt burden in the
\nregion.<\/p>\n
\"I think currency stability is already showing and the signals
\nare already out to investors, who know they cannot write off
\nAsia,\" she said.<\/p>\n
But Fong cautioned that stock markets could face turbulent
\ntimes again because they were tied to company earnings, which
\ncould take a hit as many Asian economies remained mired in
\nrecession.<\/p>\n
The prospect of political and social unrest in some of the
\neconomies could further dampen sentiment.<\/p>\n
Amid the respite in financial markets, Christopher Wood of
\nSantander Investment Securities warned that the Asian crisis had
\nnot yet climaxed in China, Hong Kong or Japan.<\/p>\n
\"In all three we have not received the point of maximum
\nliquidation,\" he said. \"Southeast Asia is a different matter. But
\nthis region will not shape perception towards Asia globally.\"<\/p>",
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