The Y2K problem refers to the expected inability of unprepared computer systems to differentiate between the years 2000 and 1900.

Analysts and traders have warned Y2K wariness will lead investors to sell off Asian and emerging-market assets in a flight to quality just before the end of the century.

'The psychology of trying to sell before everyone else appears to be getting replaced by deciding when to purchase to stay ahead of an expected Y2K rally,' Merrill said in an Asian credit report.

'Until now, the market had assumed substantial selling of holdings would begin from September, which prompted some selling ahead of time.

'Whilst few people doubt that lightening will strike some credits in Asia, interest in guessing the winners and losers looks to be receding.' Some investors were now weighing up how soon they should start buying in anticipation of an early 2000 rally, Merrill said.

Issues that were already illiquid would become more so as the century drew to a close.

Corporates in Asia are not expected to issue bonds as the year-end approaches, again due to the Y2K spook.

According to Thomson Financial Securities Data, Asian, euro and international bonds had an 'impressive' run from January to last month.

In that period, the amount of new bonds issued totalled US$27.68 billion, compared with $14.42 billion in the same period last year, reflecting the particularly poor economic fundamentals last year.

Thomson said it foresaw a stronger trend for the rest of the year, based on improving market sentiment 'brought about by the strengthening of the region's economy'.

'Truly, Asia is on its way in regaining its standing pre-crisis,' Thomson said.

However, Mr Poon believes it will be some time before Asia reaches pre-economic crisis figures.

'Even in 2000, I don't expect it to reach pre-crisis standing,' Mr Poon said.

'If you look at 1997, the total of new interest issues was about $30 billion to $35 billion and I think that was the time that every single Asian country was growing at double digits.

'I think people have learned that it is too soon yet . . . I believe that Asia should grow its equity before it chooses to grow with debt.' However, the picture is not all rosy for credit markets as the issue of liquidity looms.

'Market psychology aside, we think that liquidity will be a real issue. Even if investors do buy in anticipation of a new millennium rally, we suspect that buying will be focused on liquid benchmarks,' Merrill said.

Merrill's biggest concern for Asian credit is external factors, particularly the impact of a weak bond market in the United States.

However, 'given Asia's credit outlook', it believes it will be unlikely the region will underperform.