Asian stocks seen outperforming after another `annus horribilis'

Asian stocks seen outperforming after another `annus horribilis'

David Vujanovic, Agence France-Presse, Hong Kong

Asian bourses had another grim year in 2002, emulating global stock markets amid the economic downturn, but the region is expected to outshine the rest of the world next year despite uncertainty.

Analysts were hoping for an upturn in Asian share prices this time last year after the U.S.-led global slowdown in 2001 followed by the shockwaves of the Sept. 11 terrorist attacks on New York and Washington.

But the recovery failed to materialize due to the weak U.S. economic upturn as well as concerns about a possible double-dip recession for the world's biggest economy.

That was exacerbated by U.S. corporate scandals and oil prices shooting up ahead of an expected U.S.-Iraq war towards the end of the year.

Stock markets tumbled as Asia's crucial export sector struggled amid sluggish consumer spending in the U.S., its biggest export destination.

The region's biggest market, Tokyo, hit a series of 19-year lows and other major bourses in Hong Kong, Singapore and Taipei shed 16-18 percent. However, some of the smaller Southeast Asian markets surprisingly flourished amid the gloom.

With the U.S. economy expected to pick up next year, exporters stand to gain from stronger orders. The U.S. economy is projected to grow 2.6 percent in 2003 from 2.4 percent this year.

The mix of a U.S. turnaround and a fast growing China are seen as the right ingredients to bolster regional economies, although Japan shows little sign of emerging from its decade-long slumber.

"The year to 2002 proved to be another annus horribilis for equity markets and a tough 12 months lie ahead, yet as a region Asia is set to outperform and come end of 2003, Asia should trade higher on the back of a clearer global picture," said Markus Rosgen, ING Financial Markets' chief strategist for the region.

Japanese share prices hit a series of 19-year lows in the second half of the year because of major problems with the country's economy, as well as the global stock market downturn.

The Japanese economy continues to be crippled by deflation, along with the large number of bad loans at banks whose plunging share prices pulled down the rest of the market.

The key Nikkei-225 index lost about 20 percent after shedding almost 24 percent last year. On November 14 it ended at 8,303.39, its lowest close since March 25, 1983.

Hong Kong stocks were also hit by economic weakness and deflation. The Hang Seng index fell about 16 percent after dropping more than 24 percent in 2002.

"In the early part of the year, it was hoped that lower interest rates and an economic recovery could help the market," said Kenny Tang, associate director of Tung Tai securities.

"However, the economy did not recover and deflation remained and so for the whole year, the Hang Seng continued on a downtrend."

Seoul and Bombay held firm but Sydney and Wellington could not match their steady 2002 performance, losing about 10 and six percent respectively.

The success stories of the year were limited to Southeast Asia with Bangkok climbing about 15 percent, and Kuala Lumpur and Jakarta both up about eight percent.

Looking ahead, ING Financial Markets said in a recent report that it sees even further upside for the three Southeast Asian bourses in 2003.

For the region as a whole, Howard Gorges, vice chairman of South China Brokerage, said the threat of a U.S.-Iraq war was still hanging over markets.

"Markets are more or less discounting war in the short term but I don't think they are discounting a long delay in sorting out the Iraq problem."

But despite the uncertainties, Lim Chung Chun, executive chairman of Fundsupermart.com in Singapore, said Asian stocks now offer better value than their U.S. and European counterparts.

According to Lim, Asia's important technology-related stocks have hit a trough and are poised to bounce back next year, albeit gradually.