Has SARS Returned? Asian Markets Shrug
Asia perhaps too sanguine about SARS? - Doc
HEARD ON THE STREET
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- During the holidays, there was talk in financial circles that Asia's sizzling stock markets could be overheating and might be due for a midyear correction in 2004. Now there is a new worry: that the deadly SARS virus could return and throw cold water on markets even sooner.
Yet while a new SARS outbreak would likely hurt economies and stock markets throughout Asia, the situation today is quite different, several investors and analysts said, meaning any impact could be more limited than it was early last year.
Stock markets have largely shrugged off the latest news relating to severe acute respiratory syndrome. That includes a new, confirmed case of the disease in China and a just-announced plan by Chinese authorities to cull thousands of palm civets, an animal related to the raccoon that some scientists believe carries the disease. There have been two other SARS cases among laboratory workers in the past six months.
"If SARS comes back, there will certainly be negative sentiment in the marketplace," says Jonathan Anderson, chief Asian-Pacific economist for investment bank UBS in Hong Kong. But he adds that SARS isn't his main concern.
Last year, when the mysterious disease first hit Asia, bad sentiment quickly turned to panic, as people were afraid to travel or even leave their homes. SARS killed hundreds of people, shuttered all types of businesses and walloped industries such as tourism, transportation and retailing. Economic growth in places such as Hong Kong and Singapore came to a standstill.
Stock markets, particularly those in the most-affected countries, took a hammering. But now the region's economies and markets have recovered, and economists and fund managers are more sanguine about Asia's ability to handle SARS. The disease is "one of my worries," acknowledges Brad Aham, a senior portfolio manager with State Street Global Advisors in Hong Kong, especially in light of the developments in China.
However, he and other investors and analysts, including UBS's Mr. Anderson, say they are more concerned about more-fundamental issues that could bring down Asia's high-flying markets. Those factors include increasing stock valuations, too many new equity offerings of questionable quality and a possible interest-rate increase in the U.S.
Asia could better fight a SARS epidemic this time because so much more is known about the disease, officials are better prepared and panic likely wouldn't be as widespread, economists and fund managers say. That means stock selloffs in industries such as airlines and restaurants might not be severe or durable.
Even more, "the global economy is on a much better footing than it was this time last year," says David Fernandez, an economist and vice-president with J.P. Morgan Chase in Singapore.
Growth in Asia already was slowing when SARS hit with full force last March -- also about the time when the U.S. went to war in Iraq. Then, global economic growth was less than 2%.
Now, "we're looking at 5% U.S. growth in this quarter, and global growth of about 4%," Mr. Fernandez says. "That's a much more supportive environment for Asia were SARS to reappear."
Growth in the U.S. drives up consumer spending and demand for Asian exports. Fund managers such as Elizabeth Soon of Standard Life Investments in Hong Kong say they still are heavily invested in Asian stocks.
Ms. Soon believes there is "still a lot of earnings potential" for Asian companies, and she is particularly interested in the region's financial stocks. Though she worries about a return of SARS, she frets more about the general euphoria in Asia's stock markets right now.
"People are looking for the good news and brushing away the bad news," such as the recent announcement that Chinese regulators had taken over one of the country's biggest stockbrokers, she says.
Last year, many of Asia's markets reflected that good-times attitude. The Hang Seng China Enterprise Index, which tracks the shares of China-registered companies traded in Hong Kong, soared 152%; Thailand's SET Index also more than doubled. Still, many of Asia's stocks remained good buys, says Mr. Aham of State Street.
The price-to-book value of U.S. stocks tracked by Morgan Stanley Capital International -- a measure of the stocks' value compared to their assets -- is about 3.1, Mr. Aham notes. The corresponding ratio for Hong Kong stocks is 1.5, and it is 1.5 for South Korean stocks, he says. On a price-to-earnings basis, these markets are cheap relative to the U.S., but no longer have the rock-bottom valuations they had early last year.
So "Asia on a relative basis still looks fairly inexpensive compared to other markets," such as the U.S., he says. In terms of SARS, "as long as there are just isolated cases, and the government responds quickly and takes decisive action, then people won't be too concerned," he says.
--Craig Karmin in New York contributed to this article.
Write to Rebecca Buckman at rebecca.buckman@wsj.com
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