Asian fortunes to fluctuate with unstable global trends

Asian fortunes to fluctuate with unstable global trends

SINGAPORE (AFP): Despite sound economic fundamentals, the
region's financial markets will stay weak in the short term with
volatile flows of investment reflecting uncertainty in the global
economy, analysts said.

Asian economies have rebounded, but investors appeared to move
in and out of their markets with greater frequency as they mulled
the U.S. Federal Reserve's ability to slow down the robust US
economy, they said.

Regional stockmarkets have taken a hit in the past few days
and Asian currencies have depreciated as world markets expect a
half a point rise to 6.5 percent in the key US federal funds rate
on overnight loans when the Federal Open Market Committee meets
on Tuesday.

But the new level of interest rates is not the issue.

"People are concerned with how many more interest rates rises
it's going take to have a soft landing in the US economy," said
Anand Aithal, vice-president for Asia investment research at
Goldman Sachs Singapore.

"Our markets will be weak reflecting the fears of the global
economy despite the fundamentals in Asia, and the fundamentals in
Asia are fine," he told AFP.

Vickers Ballas Investment Research noted that stock markets
remained increasingly volatile and vulnerable to the inflow and
outflow of foreign funds.

Thailand and Singapore saw runs early last year, which were
followed by rises in Hong Kong and Malaysia, while other stock
markets slowed.

"The reality is that the hot money that swirls around Asian
markets these days is no different than in past cycles, with
foreign portfolio funds capable of exiting just as quickly as
they entered," it said in its quarterly strategy report.

But the public's obsession with dotcom listings and the
preference for "glamor" stocks "suggests that markets are falling
prey to a 'herd instinct' that will only serve to increase
volatility going forward," Vickers Ballas added.

Aithal considered Singapore and Australia the "safe havens"
for investors but felt that these, along with the rest of Asia,
"will rise and fall together."

Following a slew of US economic data showing stronger wages
and productivity and record low unemployment levels, markets are
now eying US inflation figures for April, to be released before
the FOMC meeting as an indicator of the Federal Reserve's next
move, analysts said.

"We need more data. As soon as the data shows a soft landing
for the US, then Asia will recover dramatically," Aithal said.

Analysts believe that interest rates across Asia will rise
only moderately in response to the US Federal Reserve's
tightening measures.

"A 50 basis point rate hike in the US is very well priced into
US bond and stock markets, as such, the impact on US markets will
not be dramatic, thus impact on Asian markets will not be
significant," said Chua Soon Hock, strategist at Singapore-based
Asia Genesis Asset Management.

But the more bearish analysts expect the FOMC to increase the
key federal funds rate in succeeding phases by as much as 125 to
300 basis points, until the rate stands at 8.0 percent. This
could lead to a risk of a recession, they said.

Asian economies are in better shape to cope with any eventual
US downturn, analysts said, but they warned for now of the risks
posed by the weaker regional currencies.

Standard Chartered Bank, in its latest weekly analysis of
capital markets, reiterated that a moderate rise in domestic
interest rates across the Asian economies will occur in 2000.

"This view remains valid for the moment, and is still based on
the region's nascent economic recovery, substantial excess
capacity, subdued inflation," the bank said.

It also believed Asian authorities will continue with monetary
policies to facilitate the restructuring and the development of
its domestic bond markets.

But "with commodity prices firming, crude oil prices have
climbed above US$26 per barrel again, there are significant
upside risks for imported inflation," Standard Chartered said.

The weaker currencies have also highlighted concerns that
Thailand and Indonesia may follow in Malaysia's footsteps by
introducing capital controls as a means of curbing volatility in
their markets, it added.