Forecasters see gloomy times on capital markets

PUBLISHED : Saturday, 14 January, 1995, 12:00am
UPDATED : Saturday, 14 January, 1995, 12:00am

A ROCKY year is ahead for global and local capital markets.

At the Hong Kong Management Association's 'Which Way the Dollar' seminar, forecasters were gloomster Marc Faber, UBS Securities (HK) managing director John Mulcahy, and Hong Kong General Chamber of Commerce chief economist Ian Perkin.

Mr Faber saw a liquidity crunch coming the like of which the globe had not seen in years, as economies throughout the world went into a period of synchronised recovery.

This was particularly bad news for Asia, which had basked in a period of relatively high liquidity as Western, more specifically Anglo-saxon economies, wallowed in recession.

On the liquidity crisis, he said: 'It will not go away for some time.' Mr Mulcahy said the biggest shock of 1994 was the failure of the expected bull run in the US dollar.

In 1995 he said a rise in Federal Reserve Fed funds rate of 150 basis points was expected, taking the rate to seven per cent.

A growing focus of attention would be debtors in the developed world, along with the debtors in the developing world.

Countries like Italy, Canada and Sweden would need to offer higher and higher premiums in money markets as a flight to quality among investors became the most important theme of the year.

In these circumstances the US dollar would benefit from this quality seeking among investors and its current account was in better shape than many of its Western counterparts.

Mr Perkin said he was actually optimistic about Hong Kong's economic prospects.

While there was doom and gloom among the forecasts and the market gurus, in the real economy there was relatively positive expectations.

A critical factor affecting global sentiment and possibly economic conditions was politics.

The re-election of President Clinton in the United States was going to have an impact on economic policy in that country and affairs in China was also going to be one to watch.

Each speaker was asked to forecast the Hang Seng Index, Mr Faber said it would be anywhere between 3,000 and 6,000 by the end of the year, Mr Mulcahy forecast 9,500 and Mr Perkin forecast 8,300.