S'pore, RI remain top picks: Fraser-AMMB
S'pore, RI remain top picks: Fraser-AMMB
SINGAPORE (Reuters): After a decade of sustained growth, Asian
economies are set to consolidate in 1998 with Southeast Asia to
bear the brunt of the slowdown, but Singapore and Indonesia
remain Fraser-AMMB's top picks in the region equities markets.
"Singapore still remains our top pick in the region," Fraser-
AMMB Research said in a paper received by Reuters on Sunday.
Its relatively sound economic fundamentals, a healthy
corporate sector and its reputation for a "safe-haven" market
should find favor with foreign investment managers during this
period of regional economic and financial uncertainty, it said.
Fraser-AMMB's second pick is Indonesia.
"Although the corporate picture is somewhat hazy, the
macroeconomic fundamentals are relatively sound compared with its
Southeast Asian neighbors.
"Policymakers in Jakarta must also be credited for not having
shied away from taking the harsh measures needed to restore
confidence and stability in the system -- despite the pain that
this will entail."
It projected 1998 is likely to be a year when the protection
of financial assets will be more important than the quick
realization of quick and sharp gains from Asian equities as
downside risks may still outweigh upside surprises.
"Stock markets are meant to be lead indicators of their
underlying economies. The precipitous collapse of the regional
bourses through 1997 would thus imply that Asian economies are
headed for a major downturn in the coming 12 to 18 months," it
said.
It projected Southeast Asia will see its slowest expansion
since the mid-1980s, with the more downward revisions likely in
the coming months.
The 10 major Asian economies, excluding Japan, will expand by
less than six percent in 1998 compared to an expansion of 8.1
percent during 1991-1996.
If China is excluded, the figure is projected to fall to 4.7
percent in 1998 from 6.7 during 1991-1996.
"The major brunt of this slowdown is likely to be borne by
Southeast Asian economies. Average GDP growth in Singapore,
Malaysia, Indonesia and Thailand is likely to dip to below three
percent in 1998, the slowest rate of expansion since 1985," the
report said.
Beside the theory of a 10-year cyclical downturn, one view is
that the 1998 slowdown stems from the collapse of the financial
markets and steep drops in asset values in a region where there
has been a sharp increase in physical and financial assets in the
past decade.
So strengthening domestic financial systems is critical if the
region is to regain its previous growth potential.
"The financial sector is like a lubricant in an economic
engine. A poor lubricant could damage the engine, whereas a good
lubricant can spur the engine to produce even better results," it
said.
Aside from more transparency, the "lubricant" itself could be
improved by the development of new financial products, such as
active bond and fixed-income, and housing mortgage markets which
Asia lacks.
But as inflation is likely to be a threat in the coming six to
12 months, the continuation of relatively tight monetary policies
is necessary.
"Given that most Asian currencies have now been freed and can
move in line with market forces, domestic interest rates will
probably have to play an extended role in influencing exchange
rate movements."