Optimism is growing that Asia's economy has bottomed out But investors are urged to re-enter market slowly


ASIAN MARKETS have rallied in recent months amid optimism that the economic crisis is easing. Last week South Korea announced that it was immediately repaying nearly $3 billion in emergency loans that kept it afloat last year, and China successfully raised $1 billion from foreign investors -- both indicators that investors take into account in deciding when a panic is over. But the U.S. ambassador to Singapore, Steven Green, also warned last week: "I see no fundamental change in Asia over the past 90 days to justify a sustained rally in the financial markets, much less to sustain economic growth in the years ahead." Has the situation improved enough to warrant investors' return to the area, or is it still too dangerous to risk?

Sung Won Sohn

L Senior vice president and chief economist, Wells Fargo & Co.

I think it is fair to assume that Asia probably has hit the bottom. From here on it will probably show some small, modest increases. We must recognize that we are improving from depression levels and economic conditions will be very poor.

Not only are economic conditions not good, but some of the social indicators are going in the wrong direction, such as the suicide rate, birth rate and crime, which is pretty much what happened to America in the Great Depression in the 1930s. We have to interpret what's really meant by stability; if it's stability at depression levels, that's not really saying much. In the short run, East Asian economies, excluding Japan, are benefiting because the stronger yen is making things more competitive.

They are pretty far behind in terms of long-term structural changes, such as restructuring the Korean [conglomerates] that dominate the economy. They are not very efficient, they waste a lot of resources and need to be broken up and made into smaller pieces, but structural reforms are behind schedule.

Peter Robson

Portfolio manager, Batterymarch Financial Management Inc.

I just returned from a business trip to Asia where I spent three weeks visiting various countries in the region, and it's my impression that Asia has seen the bottom of the business cycle. Thailand, Korea, Malaysia and Indonesia have all seen the bottom of deceleration and now are seeing a gentle pickup in the export side and domestic side. A Singapore residential development company in the last three weeks of October had more inquiries about purchases than in the 10 months preceding it. I am optimistic that we are at the start of a new business cycle in Asia.

Is it going to be a rapid acceleration of growth? I don't think so; it will be a muted recovery.

I'm basically optimistic. Asia is one of the few growth areas going into the 21st century, with Europe slowing down from the rapid growth in the past and the U.S. toward the top of its business cycle and Latin America entering a recession.

George Murnaghan

Executive vice president, Rowe Price-Fleming International

Our sense is that it is still too early to be making a wholesale re-entry into Asian markets. The nature of the problems that have developed over 1997 did not just create financial panic, but created economic damage that will take a relatively long time to work out. Despite the fact that markets have rallied fairly sharply over the last several months, there is significant fundamental damage done which needs to be addressed in order for there to be a case for longer-term investment in that area.

There are a lot of companies that are walking dead. A number of Asian markets have substantial foreign debt that needs to be restructured in some way so they have some hope of being able to get back on their feet. There are a lot of banks with large portfolios of nonperforming loans that need to be addressed so banks can resume lending money, and until the markets allow that, it will be a fairly ugly process. A lot of assets will need to be sold, but until that cleansing action takes place, it's not possible to put Humpty Dumpty back together again and move on.

Our sense is that for there to be any substantial increase in the market, companies will need to raise new capital to replace debt and that supply of new stock is going to overwhelm markets. If foreign investors march in, that may lead to the issuance of equity which will undermine the return.

Pub Date: 12/13/98

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