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."