Asian bourses may woo back foreign funds

Asian bourses may woo back foreign funds

LONDON (Reuter): The last traces of euphoria on Asian bourses have faded but rock bottom prices and an expected fall in U.S. interest rates next year could redirect investments to the region from Western markets, analysts said.

"You don't get a blast like 1993 very frequently but I would be very surprised if American investors don't swing out of their main markets to Asian markets next year," said Peter Innes-Ker, director of corporate finance at HG Asia in London.

Asian bourses raced ahead in 1993 on a surge in foreign investments but rising U.S. interest rates and the currency crisis in Mexico that started last December drove the region's markets sharply lower through most of 1994 and 1995.

Morgan Stanley Capital International's benchmark Asia-ex Japan index fell to 327.04 points from 1994's close of 342.54 while its World index rose to 168.28 from last year's close of 149.19 points.

Analysts say a fall in U.S. interest rates could reverse the downtrend.

"Once short term interest rates come off by 75 to 100 basis points, (0.75 to 1.0 percentage point) probably by next March or April, Asian stock markets should start picking up," said Prasenjit Basu, associate director for regional strategy at UBS Securities in Singapore.

The U.S. discount rate is currently 5.25 percent, while the Fed Funds rate, the interbank rate, is 5.75 percent.

They forecast that at their current cheap valuations, Asian shares could once again be the darling of the New Year's markets.

"Overall, 1996 will be the best year for Asia ex-Japan since 1993, with Hong Kong remaining by far the best candidate for outperformance," Alan Butler-Henderson, Asian strategist at ING Barings in Hong Kong said in a report.

"Asia has gone through a rough 18 months and the worst is over," another Hong Kong-based fund manager said.