Foreign investors may avoid SE Asian stocks

Foreign investors may avoid SE Asian stocks

HONG KONG (Reuter): Three consecutive days of strength in Southeast Asian markets have prompted a round of bullish sentiment among local punters, but foreign investors say they will look for alternatives for at least six months.

Southeast Asian bonds offer better value over the near-term than the region's battered equity markets, despite signs of a technical rebound late last week, fund managers said.

"For the next six months or so bond markets in Southeast Asia will look more interesting than equity markets," said Patrick Wong, investment director at Jardine Fleming Unit Trusts.

"Over the next six months we believe it's safer to be in cash," said Robert Rountree, regional strategist at Nomura Research Institute.

Malaysia's sudden about-face on trading measures designed to restrict short-selling and Indonesia's moves to cut rates and foreign investment restrictions helped propel most Southeast Asian markets higher late last week after two weeks of equally dramatic declines.

Indonesian stocks recorded their biggest one-day rise ever on Friday, and Malaysia's gain was the largest since 1994, to mark three consecutive days of gains. Manila and Bangkok were also stronger.

But despite local enthusiasm, foreign investors believe the technical rebound was set to come unstuck on further currency weakness.

"I wouldn't want to bet the worst is over," warned Rountree.

Regional currency turmoil, sparked by Thailand's July 2 de facto devaluation of the baht, will continue, and worsen over the next few months as the region's central bankers struggle to manage newly flexible exchange rates while further skeletons emerge from the macro-economic closet, he said.

"Even if currency speculators leave, these regional economies are still recording current account deficits into 1998 that still need to be financed," said Rountree.

"Now foreign investors are painfully aware of that fact, any enthusiasm will be tempered until they see those current accounts move towards a balance, and preferably a surplus.

"Until now, little attention has been drawn to them, but currencies are always susceptible to pressure under those circumstances."

"In these sorts of markets, people like us who are stock pickers just have to go back to our grassroots investment philosophy, because if you trade these markets you'll just get hurt," he said.

"Valuations in companies are clearly not changing. The fundamental worth of the businesses are not changing. So from our perspective it's a time when you don't overreact, you don't make large changes to portfolios, and assuming you've got your currency covered, you just don't get involved," Forster said.