Salomon sees months before funds return to Southeast Asia
Salomon sees months before funds return to Southeast Asia
HONG KONG (Reuter): Salomon Brothers said yesterday it would take a few months for funds to begin flowing back into southeast Asian markets following a shakeout across the region, with currency instability likely to persist.
"What we are seeing this year is a withdrawal of funds from the region," Trevor Rowe, chairman of Salomon Brothers Asia Pacific, told Reuters Financial Television.
"We are starting to see assets at levels now that are becoming attractive but it is probably a few months before we start seeing net buying taking place in South Asia," he said.
Rowe said regional currencies were likely to remain fragile for some time yet.
"That is going to lead to a weakening in GDP (gross domestic product) over the next seven to 12 months as a result of high interest rates flowing from the currency instability," he said.
"My own personal view is that I think the Asian countries need to move past this idea of a peg...The idea of a managed float is perhaps something of the past and they ought to be adopting more of a free market type float and allow the currency to find its own level relative to the fundamentals," said Rowe.
Higher U.S. interest rates would also pose a problem for local markets, he said. "Our house view is that we could see the Federal Reserve move to a policy of tightening by the end of the year, something like 50 basis points," said Rowe.
"This clearly is going to make money more expensive in this part of the world in terms of borrowings."
While the markets were waiting to see how Southeast Asian nations, clearly unprepared for the crisis, would deal with the situation, investors were shifting their focus to North Asia.
Rowe said U.S. funds were being repatriated to the United States and some money was flowing into the Taiwan and Korean markets.
He said Thailand and Malaysia remained vulnerable but Indonesia and the Philippines had better fundamentals. "I think there should be opportunities in all these countries. It is just a matter of when they bottom out," said Rowe.
Markets across the region took a beating yesterday. In Malaysia, the benchmark composite index tumbled 32.50 points, or 3.77 percent, to 830.58 while Jakarta's composite index slid 15.085, or 2.62 percent, to 559.931.
In the Philippines, the composite index fell 67.48 points, or 3.05 percent, to 2,145.29 while Hong Kong's Hang Seng Index ended the morning session down 411.74 points, or 2.78 percent, at 14,393.70.