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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: tom who wrote (833)	1/14/1998 12:51:00 PM
From: Mohan Marette	Respond to of 9980

Indian Rupee hits a new low! Check it out. rediff.com

To: tom who wrote (833)	1/14/1998 2:16:00 PM
From: Mark Nelson	Read Replies (2) \| Respond to of 9980

I received a synopsis of a conference w/ Abbey J Cohen this AM re: Asia and US markets. Tom, FWIW, see what her opinion is re: US bank exposure to Asia. "...money center banks don't have a significant exposure to Asia. She stated that Citibank is puting in ATMs, but she said they are not issuin spec loans. On the contrary, 60% to 65% of non-performins loans are held by Japanese banks. Less than 5% of non-performing Asian loans are held by US banks. In financial services, the failure of some Asian institutions may even open up opportunities for US financial organizations (as she cited the US closing of Daiichi-forgive my spelling). " Here is the synopsis in entirety, She believes global markets now possess less risk than 6 mos ago or a year ago. The reason: in 2h96 and 1h97 the risk premium in the credit markets decreased considerably, but rewidened considerably in 2h97 following Alan Greenspan's "irrational exuberance" comments (that Abby claims were directed at credit markets rather than the stock market.) Greenspan's comments triggered a notable expansion in the risk premium spread of markets around the world. Since the risk premia rewidened, she believes the risk in the capital market is now lower. Abby believes that the US market is 5% to 10% undervalued now based on GS valuation models. In August the market was at fair value, but since October the market is undervalued. She believes it is very difficult to determine whether international markets are undervalued (since good fundamental and accounting data are less certain from companies in many international markets), but she did state that the overvaluation of international markets last summer has diminished. Abby believes the fundamental picture in the US is superb. First, fiscal policy is sound as the government reduced the deficit (since 1990) from 6% of GDP to practically 0. Second, US corporations are better managed with margins up since 1990, ROEs at 22% (from 11% in 1990), and the return on invested capital also doubled. She said she could "go on and on." The economy is good and the problems in Asia will slow the US in the short term but are not a "big deal." She said that the US is the largest domestiv economy in the world and that foreign trade is less important in the US than in either Europe or in Asia. As for Asia, the problem is due to "lousy returns on capital" and not to a lack of capital. In fact, she claims, excess capital led to untenable equity and real estate levels. No one thought they had any risk, so they invested in increasingly risky projects. Abby likened the Asia crisis with the U.S. savings and loan crisis; S+L managers took on the riskiest loans they could find since someone else covered the risk. She said the mostly likely scenario for the US has Asia lowering GDP 0.5% from what it would have been otherwise. She said that for most companies, Asia is statistical noise. Some companies will have greater impacts, but this will be the general impact. She cited that Asia is only 30% exports that are, in turn, only 13% of US GDP. According to Abby, Asia is serious but the US economy is solid and Canada, Mexico, and Europe are improving so it will only cause a small dent to profits. She also noted that we export 30% of our trade to Asia but import 48% of what we take in from other countries. Hence, Asia is a source of production rather than a source of demand. Goldman Sachs thinks that the markets overreacted to Asia, particularly in two areas: financial services and technology. In Fin Svcs: all the stocks are under pressure despite a very favorable inflation and interest rate scenario. She said that money center banks don't have a significant exposure to Asia. She stated that Citibank is puting in ATMs, but she said they are not issuin spec loans. On the contrary, 60% to 65% of non-performins loans are held by Japanese banks. Less than 5% of non-performing Asian loans are held by US banks. In financial services, the failure of some Asian institutions may even open up opportunities for US financial organizations (as she cited the US closing of Daiichi-forgive my spelling). In technology: She said approx 50% of tech customers are international. She said that some tech companies will get clobbered, but 1) on average 70% of the international business tech business is in Europe where demand is improving and 2) most of the Asian business is in Japan. Abby also favors small cap stocks. She said the risk premia for small cap stocks has increased steadily for 2 years and is up even more over 4 years ago. She believes small cap stocks now offer "extremely gopod value." Small stocks 1) offer attractive relative value, 2) will come into favor when investors see that the US is just fine, and 3) will gain interest with the increase in volatility as investors move to more active stock selection and sector rotation. Abby expects that by the end of 1998 the S+P will be at 1075, the Dow will be at 8700, and the Nasdaq will be at 1776 (that's her number). She said these should be easily achieved. She expects 8% profit growth in 1998 (down from 12% in 1997). Positive surprises include the possibility for multiple expansion as foreign investors come back to the US market. Her negative surprise concerns earnings, particularly that any specific company might disappoint. She does not see a recession in 98 or 99. She expects wage an price pressure to be a little more troublesome than in 97, but not serious yet. Abby expects the long bond to trade between 5.75% and 6.25 for 1998 although it could go lower in the near term.

To: tom who wrote (833)	1/15/1998 5:46:00 AM
From: Thomas Haegin	Respond to of 9980

Tom, interesting notes you put up: -more << but there are many more nasty surprises in store for banks in Asia. Of that I am certain >> Me too, absolutely << sell all banks with Asian exposure (particularly European ones which have been the marginal lenders to Asia in the last few years) >> In principle I agree, but I would consider the French an British ones to be more endangered than the German or Swiss ones, generally, because of historic ties (only guessing, though). In any case, on the German newschanned N-tv (kind of Germany's version of CNN, but more low-key) one analyst from a respected German neswletter came forward saying that a source he "considered to be reliable" told him that all German banks togther have an exposure of about 100bn DEM in SEA. Most of these are rather good loans though, guaranteed by export-risk insurance for long-term projects, etc. Let me see if I find some nos. in the '96 Annual Report of Deutsche Bank. I'll be back with that. If you absolutely had to invest in SEA now, where would you? Who is the one-eyed king among the blinds there right now, IYO? Thanks. I'll be back, Thomas