Here is one of the conundrums that faces portfolio investors in Asia at the moment. The example is Thailand but in some degree it applies to all the rest of the region. In its economic fundamentals, Thailand shows clear signs of recovery at the moment. The current-account balance has swung hugely into surplus, the currency has stabilised, inflation has started to come down and interest rates are moderating at last. The Thai authorities have taken the tough measures they needed to take. It appears to be the sort of attractive mix that should finally pull up a stock market that has fallen more than 93 per cent in US-dollar terms from its peak in January 1994. Enough is enough and surely this is enough. The problem is that corporate earnings performance lags the performance of the economy by a considerable period. Earnings were down last year, but the market still showed an aggregate net profit, given that the crisis only broke in the second half. Consensus forecasts for this year, however, indicate that the overall market will show a net loss equivalent to at least 12 per cent of market capitalisation at the moment and that even next year will show a loss. Most Thai analysts do not forecast that far into the future, but it is probably safe to assume that the year 2000 will show a return to overall profitability and that earnings will continue to rise in 2001. For this argument, however, we shall assume that the aftermath of the crisis will still suppress earnings. There isn't much left to start from again. Now look at what this does for valuation of the market. Take the price at any given time as a multiple of weighted earnings per share for the next 12 months and the market's prospective PE (price/earnings) ratio from 1990 to last year was 17 times. To attract investors back it will have to be less in the future. Now assume that the benchmark SET index goes up a little to 250 and stays there right through to 2001. Even on this basis, which gives investors no return on their money for years, it will take until the middle of the year 2000 before the prospective PE ratio comes back to the 10-times level at which it is certain to attract real interest. Meanwhile, other markets will produce real gains. Go a few more years into the future and the odds are that the Thai market will boom again too, but how far ahead do investors want to be in on these prospects? Years is a long time. Economic recovery is not enough. It is the belated turnaround in earnings that now holds back Thailand.