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To: Alex who wrote (15459)	8/7/1998 5:23:00 PM
From: goldsnow	Respond to of 116764

Funds see Japan reform boosting Asian markets 10:44 a.m. Aug 07, 1998 Eastern By Andrew Priest LONDON, August 7 (Reuters) - Foreign fund managers said on Friday if Japan's attempts to revive its economy were a success they may sell rather than buy the country's equities. Why? Because the real winners of a turn in sentiment towards Japan would be the bombed-out emerging Asian stock markets, they said. ''The real mileage for sentiment turning towards Japan is really to be made in Asia ex-Japan,'' said Edwina Neal, equity strategist at Lehman Brothers in London. Neal said although full-blown reform of Japan's financial system and economy was vital to its long-term success it could be a negative for its equity market. ''There may well be a relief rally in Japan if sentiment turns but the level of corporate restucturing required implies there will be casualties and this could depress the market,'' she said. Lehman is overweight equities in Asia ex-Japan and recently moved from underweight to neutral in Japanese stocks. The recession-hit Japanese economy has cast a gloomy shadow over Asian markets already depressed by the financial crisis which sent valuations spiralling down last year. But fund managers said Japan's growing acceptance of the need to put its house in order could speed the return of foreign funds to Asian markets. Neal said Korea and Thailand stood to benefit the most from improving sentiment towards Japan because of the level of restructuring already completed in these countries. Marc Gordon, managing director at Close Fund Management, said Japan appeared to have shed its emotional denial of its problems. ''This was always going to be half of the battle,'' he said. ''If things do start to happen (in Japan) it will no doubt have a beneficial effect on other Asian markets as well as things like the Hong Kong dollar peg.'' Gordon runs a downside protected fund called the Far East Escalator fund which is weighted 33 percent in Japan and Hong Kong with the remainder distributed among markets including Indonesia, Korea, Malaysia, Singapore and Thailand. Fund managers said Japanese Prime Minister Keizo Obuchi's maiden policy speech to parliament earlier on Friday -- which set out tax cuts, increased budgetary spending and banking sector reform -- contained few surprises but indicated change remained high on the agenda. In his speech Obuchi promised tax cuts for next year worth well over six trillion yen ($41.3 billion) and some 10 trillion yen ($68.7 billion) of extra governement spending. Investors' initial response to the speech was muted. The Nikkei share index closed down 47.05 points or 0.3 percent lower at 15,829.17 and the dollar edged back above 145 yen from 144.22/32 in New York late on Thursday. ''I'm not particularly hopeful,'' said Peter Ho, who manages a 100 million pound global tactical allocation fund at hedge fund IKOS in London. ''The change in fiscal policy was signalled a month or so before the election so there has been nothing really new for some time.'' ''One thing I can bet on is that eventually either through design or compulsion the full westernisation of the Japanese economy has to happen,'' he said, adding the primary task had to be addressing problem loans among banks which official estimates put at 87 trillion yen ($600 billion). Stephen Mitchell, manager of the 315 million pound Fleming Japan Investment Trust, was less optimistic about whether Asian markets could benefit from Japanese reform. ''The key to Japan is solving the problems in its financial system but this doesn't help the recapitalisation of banking systems elsewhere,'' he said. ''The reform process is taking long enough to happen in Japan and it will take even longer in the rest of Asia,'' he said, adding Fleming Investment Management were overweight Japanese equities in all its Pacific funds. Anne-Marie Main, a fund manager at Hill Samuel Asset Management, which invests around 650 million pounds in Japan, said she expected the Japanese market to trend sideways over coming months. ''Given the underlying economy has been weak, we have been looking for a catalyst for the market to detach from the economy,'' she said. ''But so far corporate restructuring and merger and acquisition activity have been helping individual companies but have not been widespread enough to help the market as a whole,'' she said. ((London newsroom +44 171 542 5113, fax +44 171 583 7239, ukinvestments.news+reuters.com)) Copyright 1998 Reuters Limited.