Stable hort-term outlook for markets

Stable hort-term outlook for markets

SINGAPORE (AFP): Asia's economic crisis enters its 16th month
on Monday with analysts expecting regional financial market
stability at least until the New Year. But the long-term picture
remains uncertain.

Share prices and currencies in the region have recovered
substantially in recent weeks on the back of a stronger yen and
lower interest rates while speculators have retreated to the
sidelines for a much-needed breather.

"I'm bullish on Asia short term, with virtual cycles of
falling interest rates, rising equity markets and forex (foreign
exchange) to continue till the end of year," said Vincent Low,
fixed income strategist at Merrill Lynch.

Low noted that short-term rates -- powerful drivers of equity
markets -- in Thailand, Singapore and Hong Kong had fallen below
pre-crisis levels and the extra liquidity which this would create
was positive for markets.

But he was cautious about the long-term picture for the
region.

"This is primarily because the very strength that is causing
the (market) rally in the last few months will turn negative for
Asia in 1999 if the (October) U.S. interest rate cuts were
symptomatic of financial sector fragility," Low said.

Trouble would brew also if the yen strength had been caused by
hedge funds unwinding short-term positions to cover emerging
markets losses elsewhere, he said.

Asia's economic crisis was triggered on July 2, 1997 with the
de facto devaluation of the Thai baht. That led to a stock and
currency meltdown together with a collapse of real estate prices
and a banking crisis.

After plumbing lows at the end of August this year, Asian
equities and currencies have risen by about 30 to 40 percent
during what one analyst called the current bullish interlude.

ANZ Investment Bank head of Asian markets research Daniel Lian
forecast the present rally would persist into January with "at
least another 20 to 25 percent upside" in most Asian equities and
"some five to 10 percent upside" in most Asian currencies.

"As long as Brazil and Latin American markets do not collapse
in a major fashion like Russia, flows of international capital
into Asia should intensify in coming months," Lian said.

Singapore and Hong Kong stocks last week scaled levels unseen
for five to six months while Thailand's stock exchange faced its
busiest period in eight months.

The Thai baht is riding on a 12-month high against the U.S.
dollar, the Philippine peso and Indonesian rupiah are at nine-
month highs, the Taiwan dollar at an eight-month high, the
Singapore dollar at a six-month high and the South Korean won at
a three-month high.

Thio Chin Loo, currency strategist at Banque Paribas, said
amid the bullish market scenario for the short term, "I don't
expect speculative activity to pick up again which means domestic
players will continue to drive Asian currencies higher.

"They may overshoot a bit in the last wave of unwinding before
further weakness sets in," she cautioned.

She said the U.S. dollar could remain depressed by mid-term
congressional elections on Tuesday which could refocus attention
to possible impeachment proceedings against President Bill
Clinton over his affair with White House intern Monica Lewinsky.

Fong Cheng Hong, regional analyst at Nomura investment house,
said foreign exchange stability would be the key to bringing back
investors to Asia as well redressing the debt burden in the
region.

"I think currency stability is already showing and the signals
are already out to investors, who know they cannot write off
Asia," she said.

But Fong cautioned that stock markets could face turbulent
times again because they were tied to company earnings, which
could take a hit as many Asian economies remained mired in
recession.

The prospect of political and social unrest in some of the
economies could further dampen sentiment.

Amid the respite in financial markets, Christopher Wood of
Santander Investment Securities warned that the Asian crisis had
not yet climaxed in China, Hong Kong or Japan.

"In all three we have not received the point of maximum
liquidation," he said. "Southeast Asia is a different matter. But
this region will not shape perception towards Asia globally."