Analysts see rebound for Asian markets this year

PUBLISHED : Sunday, 28 April, 1996, 12:00am
UPDATED : Sunday, 28 April, 1996, 12:00am


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ASIAN emerging markets look stronger this year after recording their worst performance in five years in 1995, analysts say.

In its latest report on Asian emerging markets, London-based Fund Research said the region followed global trends in new markets with a second year of poor performance in 1995, but the downturn was deeper and longer than expected, with the Asian index falling 13.9 per cent.

The performance was especially weak when compared to Latin America and the United States.

Foreign portfolio inflows slumped as investors flocked to developed markets. They were also scared off by market volatility and political and economic uncertainties in developing countries.

All Asian markets surveyed fell except for Indonesia and Malaysia, which posted rises of 12 per cent and 3.6 per cent. Four markets - Taiwan, Pakistan, Bangladesh and India - plunged by more than 30 per cent during the year.

The report said the poor performance on the Indian subcontinent during 1995 and early this year was due to investor disillusion with policy mistakes, delays in reforms and political uncertainties.

During the past five years, Asia's performance has lagged behind other emerging markets. While the Latin America index recorded returns of 210.7 per cent over five years, Asia marked only 50 per cent. In the developed markets, the return on the Standard and Poor's 500 index was 115.2 per cent.

Despite the gloom, the first few months of 1996 has pointed to an upturn, with emerging markets boosted by increased capital inflows. Performance and expectations rose in most Asian markets, except for Taiwan, South Korea and Indonesia, where political instability continues.

Fund Research said the outlook for the region was mixed. 'There is, however, agreement among practitioners that the case for emerging markets long term and particularly for Asia remains compelling.' The prospects for growth were greater than in the developed world and the Asian economy was becoming increasingly integrated, it said.

'While the consensus appears to be that 1996 will prove a better year overall, although not to the levels seen in 1993, there is a divergence of views among managers about the sustainability of the rises given that the low valuations seen at the beginning of the year have already edged up to more typical levels in certain markets.' ING Barings estimates that the Asia-Pacific will receive about US$30 billion in portfolio equity investment this year, out of about $50 billion available globally. This is below the record $40 billion invested in the region in 1993, but is well above the $16 billion invested in 1994 and $8 billion last year.

The number of Asian funds continued to rise with 67 launches last year worth $1.9 billion and 170 new funds in 1994 valued at $7 billion.

Taiwan had the greatest increase with 44 funds, up from 29 a year ago, while South Korea rose to 67 from 54.

The report said China had suffered another poor year in 1995 with a fall in the IFCG index of 12.4 per cent and the CLSA B-share index of 25 per cent.

This was due to the austerity measures over the past two years which have slowed the growth of state fixed-asset investment, tight credit policy, and trade liberalisation. Greater China funds outperformed the China IFCG last year because of their freedom to invest in the region, particularly Hong Kong.

Indonesia was the 'dark horse' of the Asian emerging economies with significant increases in foreign investment from the late 1980s but a steady downward trend in the funds market since 1993.