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.