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SCMP Reporter

Benign US interest rates, copious world liquidity and economic recovery in China will ensure Hong Kong leads a resurgence of Asian equity markets, Manu Bhaskaran, chief research director at Crosby Securities, says.

  Stay tuned to the Asian growth story was the soothing message from the market strategist in the wake of this week's chaos on Wall Street.

  Short-term turbulence would be encountered, but the prospect of higher US rates and falling corporate earnings pulling Asia into the vortex of a Wall Street sell-off was unlikely, he said.

  Instead, falling US bond yields would underpin financial stability in Southeast Asia, while Hong Kong could expect the added bonus of extra capital from China, Mr Bhaskaran said.

   Much had been made of the liquidity crunch that may accompany a Wall Street crash if US mutual fund investors withdrew from overseas markets.

  Rising interest rates were considered the most likely trigger of that scenario, with faltering corporate earnings intensifying the brew, he said.

  But the direction of long-term US interest rates was down, with the yield on the US long bond likely to dip below 6.5 per cent within the next six months, Mr Bhaskaran said.

  He said that Asian markets, which are tightly correlated to movements in US bond yields, would benefit from the high liquidity that a low interest environment supported.

  Hong Kong would be the immediate beneficiary of renewed portfolio flows from the United States and Japan as it was the most liquid market and the most closely linked to the US monetary cycle, he said.

  Additionally, the relaxed credit policy being pursued in China meant that capital flows from mainland companies into Hong Kong property and stocks was likely to resume.

  The impact of a probable 5 per cent depreciation of the yuan, lower inflation and a looser bank lending policy would lower interest rates and push capital into Hong Kong, he said.

  A re-run of the 1993 flood of hot money into Hong Kong from mainland institutions was unlikely, he added.

   Singapore and Thailand were tipped to outperform, while reduced company earnings in Malaysia caused the strategist to post a sell notice.

  Worries that Singapore was becoming uncompetitive because of the strong appreciation of its currency meant that the Monetary Authority of Singapore was likely to run a loose money policy in the coming months, he said.

  The stance should boost domestic liquidity, which would push share prices higher, he said.



Crosby forecasts Hong Kong at forefront of Asian bull run