Property oversupply weighs on Asian stocks

Property oversupply weighs on Asian stocks

HONG KONG (Reuter): Property oversupply in Southeast Asia and Thailand's economic woes are weighing on the region's stock markets, preventing them benefiting much from strong U.S. markets, experts said yesterday.

Investors have become increasingly concerned that the Philippines could be hit by banking and property problems similar to those in Thailand.

Manila, unlike some other depressed Southeast Asian markets, failed to gain at all from a 179-point rise In the Dow Jones Industrial Average on Tuesday.

Foreign investors continued to dump Philippine shares after a broad market sell-off on Tuesday wiped 4.54 percent off the main index.

Manila's composite share index fell another 60.27 points or 2.23 percent to close at 2,648.17 on Wednesday.

"The Thai example has to a certain extent corrupted the stories in the Philippines, Malaysia and, to a certain extent, Indonesia," said David Descalzi, senior portfolio manager with Prudential Asia.

Poor asset quality among Thailand's banks and finance companies, many linked to the cash-strapped property sector, prompted a major reshuffle in the industry that has contributed to a severe economic downturn after years of strong growth.

"Everywhere you look (in Asia) there is a property concern and property is a leading indicator. Once property starts to go then a lot of other things go in the economy," said Descalzi.

Traders in Manila blamed continued foreign investor selling for the fresh market slide.

Two major international houses, HG Asia and Credit Lyonnais, drove much of Tuesday's big fall, with foreign investors bailing out following disappointing corporate earnings from market heavyweights, San Miguel Corp and Manila Electric Co (Meralco).

"What we're seeing really is a second derating," said James Wilson, institutional sales director at Deutsche Morgan Grenfell.

"This is a second wave of selling prompted by disappointing corporate earnings."

Sources said foreign institutional investors were making heavy downward revisions of corporate earnings growth, although this could not be confirmed.

Institutional investors first started to unwind Manila positions about four months ago when the first signs of swelling credit prompted concerns about a developing property bubble.

New rules to restrict property lending by the Philippines central bank on Tuesday were welcomed by market players as a pre- emptive move to counter parallels with Thailand.

Hong Kong and Kuala Lumpur have also issued property lending rules in the past few weeks to dampen speculative pressure in the sector.

Some analysts said a number of Philippine banks would be affected immediately, including the nation's biggest, Metropolitan Bank and Trust Co.

Many banks have reported their property lending exposure at less than the new maximum of 20 percent of outstanding loans. But consolidation of accounts suggests exposure is higher at subsidiaries and this will require management, they said.

Prudential Asia's Descalzi said foreign investors, having been burned once in Thailand, were not prepared to wait around and get hit again in the Philippines.

"We don't think it's as bad as Thailand but investors are nervous, and they won't wait around to find themselves in the middle of (a Thai-style situation) in the Philipines," he said.