Saturday January 17 7:43 AM EST
Investors Beware: Asia's Ills Not Over
By Pierre Belec
NEW YORK (Reuters) - Bargain-hungry investors are looking at Asian stocks with lust in their eyes after months of deep declines
that have been fueled by the Asian economic meltdown.
But the experts say there is still danger in ailing Asia and warn investors that they are not dealing with just a 24-hour flu.
Stocks in Japan, Hong Kong, Indonesia, Thailand, Singapore and South Korea have had near-death experiences as investor hysteria
has walloped their markets, sending them to levels that priced their companies for outright bankruptcies.
The myth that the Asian economy was invincible came crashing to the ground in October, and the fallout is still being seen globally.
The Asian turmoil was critical because the region has been a key pillar in the global economy.
Asia was the victim of its own success as investors convinced themselves that trees grow forever to the sky and rising real estate
prices beget ever higher returns. When the speculative bubble burst, the region's economies and stock markets fell like a house of
cards.
Now it seems that all the bad news about Asia has been reflected in the stock markets, and the crisis may be easing.
Although some optimistic investors say they don't see anything that can still upset the markets, the experts warn that Asia's problems
have not been solved and the healing will take time.
"There's still danger out there even though it's tempting for investors after stocks have fallen so much," said Anthony Cragg, head
portfolio manager for Strong Capital Management's Strong Funds, an internationally invested fund with assets of $250 million.
He said people are making a big mistake when they try to draw a parallel between the mid-'90s economic crisis in Mexico, -- a
relatively brief economic disruption -- and the current Asian mess.
"I don't think we are going to get a rapid overnight recovery in Asia because, for one thing, several countries are involved and we
are dealing with a different set of problems that will take longer to work out."
The hope that Asia was turning the corner this week helped spark a recovery in the Dow Jones industrial average.
By Friday, the index of 30 blue-chip stocks was up 173 points for the week, nearly halving the trading period's loss of 385 points,
which was the biggest weekly fall in history.
Cragg believes that Asian markets will eventually offer opportunities to investors but not before the second half of this year.
"Sure, there will be rallies in the markets -- dead cat's bounces or suckers' rallies -- but serious investors will need to be wary and
very, very selective about getting back into Asia," he said.
Analysts feel it is still too early to talk about a bad situation where the worst is over.
"The Asian problem may very well be deeper than most Asian government officials will be allowed to admit publicly and for that
reason, stock market investors should hold back for a while," said John Geraghty at North American Equity Services, a consulting
firm.
He said that one of the hardest things that an investor can do is try to figure out when a market's downward motion will stop.
When is the best time to start buying cheap Asian stocks? "Professional investors rarely buy on the first rally," said Geraghty. "They
tend to let the public become the stalking horses who will take the hit while they step back to see what actually happens to the
market."
If the rally holds, then the professionals will start to build new positions, allowing the markets to decide how much they should buy,
he said.
The risk is still very high, even after the tremendous drop in stocks that has offered what seems to be bargain-priced stocks.
"Yes, there are real bargains, such as in Korea where investors can buy companies for 10 to 25 cents on the dollar," Geraghty said.
"But people may also be buying stocks in companies that are the verge of sliding into bankruptcy and they could wind up with
investments that are worth zero."
The list of troubled companies is striking. In Indonesia, for example, 260 of the 282 companies listed on the country's stock exchange
are already technically bankrupt.
For the people who want to invest in Asia, the trick will be to see how the companies react in the tough new environment of slow
economic growth and soaring interest rates.
"The focus on Asia exposed other problems in Asian economies that were under the surface all along, and these problems suddenly
became critical when investor confidence plummeted," says Greg A. Smith, chief investment strategist for Prudential Securities.
He said that exports will be the key to the Asian companies' survival.
"During 1998, consumers spending will decline sharply in the affected countries as solutions to their problems are put into effect,"
Smith said
"Then, the real issue will be how the companies survive. Their survival plans will depend on trying to export, particularly to the
United States, where the strong currency exchange offers the most dramatic opportunity for market-share gains," he said.
On Friday, the Nasdaq Composite Index closed at 1,562.88, up 59.65 points for the week.
The Standard & Poor's composite index of 500 stocks was at 961.51, up 33.82 from a week earlier.
The NYSE Composite index of all listed common stocks was 503.67, up 16.20 points for the week. |
