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To: Steve Fancy who wrote (6680)	8/14/1998 6:05:00 PM
From: Harold Carrizo	Respond to of 22640

Cross-region contagion? No, don't think so! Friday August 14, 12:58 pm Eastern Time Emerging stock mkts rewarding long term - N.Y. Fed By Isabelle Clary NEW YORK, Aug 14 (Reuters) - Crises in emerging stock markets have a more severe and lasting effect than those in developed countries, but long-term investors will usually find rewards if they weather the storms, a Federal Reserve Bank of New York economist said. ''Emerging markets tend to have larger price declines and longer recovery times than developed markets,'' New York Fed economist Asani Sarkar told Reuters. ''I am reluctant to pass judgments about what is happening now. But one thing is useful: if you look at previous periods of recovery in emerging markets, it typically takes three years for the price level to return to where it was before the crisis,'' Sarkar said. ''However, for the three years subsequent to the recovery, stock prices tend to decline again. Historically, if you look at these crises, it's a long period of recovery,'' the New York Fed economist added. Sarkar, who authored a New York Fed research paper on stock market crises with J.P. Morgan emerging market analyst Sandeep Patel, studied stock market crises in the Group of Seven nations, Switzerland, and four East Asian and six Latin American countries. Sarkar said although the recent selloff in Asian stock markets fueled fears of a global contagion across all emerging markets, there is no historic evidence of such contagion spreading from one region to another. ''One thing we looked at is, if a region is in crisis, most of the countries in the region also are in crisis,'' said Sarkar. The paper examined nine stock market crises in developed and emerging markets over a period of eight years. ''Over longer horizons, prices do recover from a crash. However, the recovery time is longer for emerging markets and, within emerging markets, longer for Asia than for Latin America,'' Sarkar pointed out. ''In industrial markets, the crises were of diminishing severity both in terms of the extent of the price decline and the duration of the crises,'' he also said. Another difference Sarkar found was that stock market crises tended to worsen each time in emerging markets, while they tended to be less severe in developed markets. Turning to the contagion risk, which is a major fear for global investors, Sarkar said he learned that individual countries have difficulty escaping the turmoil that engulfs a particular region. ''There is strong evidence of contagion within regions in that most countries in a region participate in a crisis,'' said Sarkar, who found only one period in the early 1980s when G7 countries, Asian and Latin American markets were all in turmoilat the same time. ''We did not find there is a similar pattern of contagion between regions. We did not find that if Asia is in crisis, Latin America would necessarily also be in crisis,'' the New York Fed economist said. Despite the potential severity of the crises in emerging stock markets, Sarkar found evidence that global investors will benefit by weathering a storm and remaining in troubled emerging markets -- provided they stick it out for the long haul. ''U.S. investors prepared to hold on to their investments for six months or more find rewards in holding international stocks even in times of crisis,'' Sarkar said.