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To: Bobby Yellin who wrote (12698)	6/7/1998 4:57:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116795

Asian crisis may have silver lining for investors 12:17 p.m. Jun 05, 1998 Eastern By Valerie Darroch LONDON, June 5 (Reuters) - The Asian financial crisis may have a silver lining for investors in European equity markets as Europe becomes the new engine for economic growth, global strategists said on Friday. There is no doubt some corporates in Europe have been hurt by a slowdown in Asian orders, but strategists argue that this has been more than offset by an upturn in domestic demand and a reduction in raw material costs as global commodity prices stagnate. The two big risks to strong returns from European shares are a failure by Japan to halt its economic decline and the possibility of a correction on Wall Street, strategists said. ''Just to see the Asian crisis as a negative is wrong,'' said Jerry Evans, strategist at Enskilda, London. ''There's the deflationary impact of raw material which has helped keep inflation down. That's positive for bonds, interest rates and equity markets,'' Evans said. He acknowledged that some companies are clearly hurting from a slowdown in export orders but said that high profile casualties such as Motorola did not constitute a trend. US giant Motorola Inc announced plans to cut 15,000 jobs on Thursday, citing the effect of weak Asian economies on its semiconductor business. ''It's what I would call a landmine problem...just a little explosion every now and then,'' Evans said. Economic data from France and Germany on Thursday showed that the Asian crisis has hit export growth. However both countries reported good internal demand for goods and services, supporting the view that fears of Asian contagion may have been overdone, at least as far as Europe is concerned. France still expects to achieve GDP growth of three percent this year while Germany is on course for GDP growth of 2.5 to three percent. The US economy is also still going strong too, achieving GDP growth of 4.8 percent in the first quarter of 1998 and keeping unemployment at a 28 year low. The concerns here centre on slowing corporate earnings growth which strategists say may jolt Wall Street as earnings fail to match expectations. ''We are seeing a lot of earnings downgrades in the US, particularly among high-tech stocks. If this increases the Dow could take a big hit,'' said Shaun Roache, global strategist at ING Barings in London. ''But our baseline view is that the US will trade sideways to modestly higher. The market is caught in a funnel - it can't go up too much because of lower earnings growth but it can't go down too much because of lower interest rates,'' Roache said. Clearly European stock markets would be vulnerable to a correction on Wall Street, but if this can be avoided, the outlook seems bright. ''What's my favourite market ? The answer has got to be Europe, Europe, Europe,'' Evans said. Within Europe, strategists tipped the German, Austrian, Swedish, Italian and Spanish equity markets as likely to see good returns. Japan's economic problems are viewed as the biggest potential threat to global financial markets. However strategists were optimistic that the Japanese government's 16 trillion yen plus economic stimulus package would help turn around the sluggish economy and halt the slide in the yen against the dollar. ''If dollar/yen breaks 140 and goes to the 150 level then that would be very bad news,'' Roache said. Any further downturn in Japan would put greater pressure on battered Asian currencies and could force China into an early devaluation of the renminbi yuan. ''We think the Japanese government will pull the economy out of its dive by the autumn and we're looking for dollar yen at 125 by the year-end,'' Roache said. Goldman Sachs global strategy team also painted a rosy scenario for world stock markets. ''The Asian malaise is good for global stocks,'' they said in a strategy note. ''Our favoured region is Europe because the region looks set for an extended profit recovery with aggressive corporate restructuring driving return on capital to higher levels than in normal cycles,'' Goldman said. ''I would say thank you very much Asia...what a marvellous positive,'' joked Enskilda's Evans. But he added more soberly: ''If some of the grimmer 'what if' scenarios pan out then Asia may still have the last laugh.'' Copyright 1998 Reuters Limited.