Asia must 'put house in order'

Asia must 'put house in order'

Eileen Ng, Agence-France Presse, Kuala Lumpur

There is little Asia can do to prevent a foreign investment slowdown amid fears of terrorist threats but it can "put its house in order" to rebuild confidence, analysts said Monday.

The recent bomb blast on the Indonesian island of Bali and a looming U.S.-Iraq war are driving investors out of the region and they are likely to stay away in the short-term, analysts told a conference on strengthening investor confidence in emerging markets.

"They are shying away from the region now and I don't think there will likely be a turnaround in that situation for the next six months," said ING's chief economist for Asia, Tim Condon.

Condon forecast a short-lived U.S.-Iraq war in early 2003 but said a repeat of the 1997-1098 Asian financial crisis was "very unlikely."

Even if a war was averted, he said, prospects for the region were "considerably gloomier" now than it six months ago amid weak business and consumer confidence and fragile capital markets.

"There is not much that Asia can do amid the global uncertainties. Asia will be forced to rely on domestic demand to generate economic activities. Growth will be driven by Asian investors," he added.

Manu Bhaskaran, economic research chief with consultancy firm Centennial Holdings in Singapore, said fears of a second Gulf War have already wreaked havoc on Asian economies.

"It looks like there is a high risk of war but whether there is a war or not, almost doesn't matter now because the damage is done," he told AFP.

"Oil prices have risen because of the fear of war, uncertainties over the war and its implications have already caused businesses around the world to cut back on spending and hiring and it has already slowed global growth and affected trading countries in the region."

With dark clouds over growth prospects in the United States, Japan and Europe and perceptions of Asia as a new terrorist ground, he forecast a "cautious, subdued outlook" for the region.

"Asia must focus on improving its own fundamentals. Get your own house in order. People may have wrong perceptions but eventually they will come back to fundamentals," he added.

Bhaskaran said Asia must search for new domestic growth engines and continue its restructuring and consolidation to cope with growing foreign competition and improve resilience to instability.

"The world is a tougher place and the key is adjustment to change. Those who change will prosper but others who do not will fall by the wayside. There will be a stark pattern of winners and losers," he added.

John Snow, chairman of U.S. fund manager State Street Global Alliance LLC, said Asian markets would have to lower their investment target for the next three to five years.

Emerging markets, most which lacked liquidity and breadth, make-up only two to four percent of investment portfolios in the world capital basket with Asia dominating the race, he said.

They must improve corporate governance and strengthen legal reforms to boost private equity flows, he added.

Malaysia's Securities Commission chairman Ali Abdul Kadir said 78 emerging stockmarkets worldwide accounted for less than 10 percent of global market capitalization at the end of 2001.

Liquidity has also dried up, with emerging stockmarkets accounting for just over five percent of the world's market turnover compared to around 18 percent at the end of 1994, he said.

"It is crucial therefore that we take focused, definite and concerted steps to reverse this situation," Ali said.

"The biggest challenge that emerging markets face going forward is that of retaining and building up investor confidence. As we all know, once lost, confidence is frightfully difficult to regain."