Asia's year of living dangerously
U.S. woes take center stage in year of the dragon
By Allen Wan, CBS.MarketWatch.com
Last Update: 2:01 AM ET Nov 27, 2000
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HONG KONG (CBS.MW) -- There may be a month to go, but the verdict
is already in.
Not since a financial crisis battered Asia in 1998 have the region's markets
had such an "annus horribilis." Only a third of the bourses in the region are
set to post gains in 2000. And unless you were one of the lucky ones who
invested in places like Hong Kong and Singapore, you probably lost money.
"This year was dreadful for Asia," said Agnes Chow, fund manager at
Investec's Hong Kong office.
Of Asia's 15 main stock exchanges, only Hong Kong, Singapore, Kuala
Lumpur, Bombay and Sydney are sure-fire winners barring any 11th hour
meltdown. The range of gains hovers between 15 percent for Sydney to 50
percent for Hong Kong so far this year.
If you happen to be invested in Tokyo, Taipei, Manila or Seoul -- better luck
next year. These markets are down by as much as a third.
Other Asian markets are teetering along the great divide, a survey by
Thomson Financial showed.
Asian markets suffered this year for a number of reasons. For one, they all
gained last year -- with the exception of war-ravaged Sri Lanka -- as the
effects of the Asian financial crisis receded. It may have been too much to
ask for a repeat of double-digit gains, analysts said.
Political woes came to the fore. Leadership struggles dragged on in the
Philippines, Taiwan and Indonesia with little end in sight. Asia's financial
crisis may be over, but bad loans are on the rise in places like Taiwan.
Companies are still going bust in record numbers in Japan, the world's
second-biggest economy. In South Korea, where labor is king, the biggest
industrial conglomerates went bust anyway, hurting the creditor banks that
lent money to them.
The list goes on. But economic and political strife is not new to Asia and
can't be solely to blame.
Follow the leader
Asian fund managers and strategists pretty much agreed that the U.S.
market's declines this year had as much to do with the regional slump as
Asia's own backyard woes. And unless the environment for U.S. shares
improves in the coming year, expect more market doldrums to come.
"The bottom line is certain things are happening in Asia -- the reform
process, political risk -- that are important for Asia. But another key driver
is what's happening in the U.S. market," said Hon Cheung, managing
director of the Singapore office of State Street Global Advisers.
A rising tide of corporate earnings warnings, soaring commodity prices,
slowing economic growth and presidential uncertainty all weighed on the
U.S. markets this year. That's bad news for key Asian countries like Japan,
whose Nikkei stock index has come to move in lockstep with the U.S.
markets, especially the tech-laden Nasdaq.
For example, over the past three months, the Nikkei's correlation with the
Nasdaq has risen to 0.861 on a daily basis, up from a correlation of 0.662 in
the first three months of the year.
Tech baby and more tech
Investec's Chow partly points the finger of blame to Asia's U.S.-inspired
lovefest with technology and telecoms. "There were concerns over the tech
sector. All companies suffered from overly bullish expectations," she said. "
These tech expectations have been adjusted down."
Again, slowing PC demand and falling chip prices may have hurt U.S.
companies, but tech-reliant regional powerhouses like Japan, South Korea
and Taiwan also felt the pain.
Han Ong, the head of the Asian Equity Strategy group in Salomon Smith
Barney's Hong Kong office, said that he's been bearish on Asia, citing the
prospects for Asian technology and telecom shares as well as interest rates
and economic growth.
"With the thrust of Asia in tech and telecom, there was only to be
disappointment," he said.
Predictions for 2001
Investec's Chow, who manages Asian equity funds totaling $400 million for
her fund company, is sanguine about the future, given Asia's reality check
this year.
"I think our stance is pretty clear in that we are still positive," she said.
"Tech selling was overdone in Asia. Asia is not trading at high valuations
compared with the U.S.
She likes Hong Kong and Taiwan because they're "cheap."
"We believe that the correction has been overdone, especially in Taiwan."
Hong Kong is promising if interest rates -- which move in tandem with the
United States -- are cut, she said. "Right now, it depends on the U.S., but
our assumption is for a soft-landing for the U.S. economy."
Other analysts take a more cautious view for the coming year.
Salomon's Ong, who is underweight on North Asia especially Taiwan and
South Korea, and negative on the tech and telecom sectors believes the
U.S. Fed has to show its hand before any predictions can be made.
"We have to wait for the market cycle to play out to see if interest rates are
going to be cut," he said.
For those investors who can stomach Asia's twist and turns, it could prove
to be profitable ahead.
"As long-term investors, we strongly adhere to a medium and long term
perspective based on valuations and growth of a slight move away to Asia,"
said State Street's Cheung.
However, don't expect Asian markets to become any less riskier. "Risk as
measured by volatility is higher in Asia," said Cheung.
He said volatility for Asian markets ranges from 30 to 50 percent,
compared with 17 to 18 percent in the United States.
"And the risk of Asia as measured by volatility will be high ahead."
Allen Wan is a news editor for CBS.MarketWatch.com in New York.
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