Asian Markets: The Fog May Lift By Midyear

Watch, wait--and pray for money from abroad. That sums up 1995 for most investors in Asian equities. With the exception of Hong Kong, up 20%, most other Asian bourses barely budged--and Taiwan lost 33%. Investors in Asia have gritted their teeth in frustration as Wall Street's rally has left the world's fastest-growing region behind.

If 1996 is to turn out better, pros say, global interest rates will have to fall some more. "The big question is when liquidity is going to pick up again," says David Shairp, regional research director for BZW Asia Ltd. A large enough rate decline, Asian pros feel, would cause stocks to start picking up in the second half of 1996. In fact, Salomon Brothers Inc. is already telling customers to build up exposure to Hong Kong. For one thing, the colony has already had its collapse, with stock prices falling 45% in 1994. Even after the gains of '95, the market is still selling for less than 12 times next year's estimated earnings, its lowest valuation in five years.

Others insist Solly is jumping the gun. Hong Kong real estate values are flat in a city that lives and breathes property. "I can't really see where the excitement is going to come from," says Bruce Seton, chief executive officer of Peregrine Asset Management (Hong Kong) Ltd. Still, even Seton is looking for a pickup late in the year--and he thinks New World Development Co., a well-managed property and infrastructure developer, is a safe way to go. And don't forget 1997, when Britain is due to hand over Hong Kong to Beijing. Mavens suggest stocks could receive a boost if relations with China remain stable prior to the big shift.

Another concern for Asian investors is inflation. Most worries center on Malaysia, which is wrapping up its eighth consecutive year of 8%-plus economic growth. Analysts fear the country's currency will be hammered by speculators, forcing a hike in interest rates that could hurt many highly leveraged companies.

The outlook appears better for Indonesia. Despite a flat market in '95, Lisa Stewart, a director at Hong Kong's Bowen Capital Management, still likes Indonesia's solid earnings growth and 12.6 average price-earnings ratio. Her top pick: HM Sampoerna, a maker of clove-flavored cigarettes favored by local field hands.

SWIFT SELL-OFF? In northeast Asia, the major worry is politics. Taiwan has been rocked by Beijing's pressure campaign to stem thoughts of independence. And Korea's market is suffering from a political-corruption scandal. But with earnings growth remaining strong in Seoul, many fund managers still bet that the market will live up to the hopes they had for it earlier this year, when it was picked as one of the most attractive in the region.

Some strategists think it will take a while longer for such hopes to be realized. They think it more likely that Asian markets will see a precipitous sell-off during the next 6 to 12 months if U.S. investors cash in their Asian shares and put the money back to work at home. "I'm perceiving a climactic finale," says Peter D. Everington, managing director of Hong Kong's Regent Fund Management Ltd.

But once that passes, Everington says, bargain hunters will appear in earnest. "You will get a great buying opportunity," he says. Indeed, across Asia, market fans are counting on the region's attractions--fast growth, stellar productivity, and high savings--to win global investors back. But until the punters return, Asian markets may face more rough going.

Before it's here, it's on the Bloomberg Terminal.