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."