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Asia ready for bear market rally - research report
By Doreen Siow
SINGAPORE, Aug 13 (Reuters) - The foundations are in place for an Asian bear market rally of some 10 to 15 percent, SG Securities Research said in its latest weekly report on global emerging markets.
SG said in the report made available on Thursday that despite still deepening gloom over Asia's year-old economic crisis, positive signs were appearing -- some progress on recapitalisation and a gathering export momentum.
''The current quarter will see the greatest speed of contraction in regional economic activity in decades. The headline numbers for GDP (gross domestic product) falls suggest a sharp increase in corporate bankruptcies, unemployment and pressure on the banking sector,'' it said.
The mood was likely to become very depressed even though much of what is happening was expected, the report said.
''Corporate earnings will probably surprise on the downside as even healthy companies take the opportunity to clean their balance sheets and, for instance, report larger than expected provisioning,'' it said.
But SG said the crisis would have a finite duration and would not turn into a long depression.
The volatility of currency movements was likely to decline and regional currencies were likely to stabilise, it said.
''Where the adjustment processes have worked most successfully -- (South) Korea and Thailand -- currencies are already stabilising or strengthening,'' it said.
''The chances of a material fall in interest rates across much of the region are rising.''
SG said that besides a fall in risk premiums, a number of other factors were also likely to allow rates to fall by the fourth quarter of the year.
It also said inflation in the region was also clearly peaking, with the exception of Indonesia.
''The recapitalisation process is accelerating. There has been a surge in merger and acquisition activity resulting in a large amount of deals that have actually been transacted,'' it said.
SG said in South Korea, deals worth about US$5 billion had been concluded with a similar amount in the pipeline.
Policy makers elsewhere, as in Malaysia and Thailand, were also easing conditions for foreign investment, and prospects for a fourth quarter export recovery were improving, it said.
The key was not so much the headline rate of slowing growth in the United States or the European Union, but rather domestic demand and the outlook for the electronics sector to which emerging Asia is particularly sensitive.
''U.S. and EU domestic demand is proving to be very strong,'' it said. ''Early indications suggest that the electronics cycle could be on the verge of recovery.''
SG said it had picked up signals from industry specialists that the slowdown in the semiconductor sector might turn around earlier than expected. ''The main electronic producers in Singapore are increasing volume output again.''
It suggested Singapore's stock market could revive more quickly than Hong Kong's, even though things looked worse in Singapore now because of its its sensitivity to a contracting Malaysian economy.
But Hong Kong was unlikely to see ''a strong positive driver of value creation'' over the next 12 months. The outlook was for high real interest rates to persist and so cap the contribution of the property sector to earnings.
From a 12-month perspective, Singapore looked more positive given the deregulation, restructuring and consolidation in the financial and government linked companies (GLC) sector, it said.
''Moreover, as the region's export engines revive, Singapore will benefit disproportionately in GDP terms because of its greater sensitivity to the region's exports,'' it said
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