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Suzanne Harrison

Asian stock markets are cheap even after recent rallies but Hong Kong will not attract as much foreign investment as other economies, according to Bankers Trust Funds Management's global emerging markets head.

 Asia could be the world's fastest growing region this year ahead of a medium-term recovery, Paul Durham said yesterday. He held a positive outlook over Asia on the back of improving fundamentals.

  He pointed to a surge in liquidity, massive turnarounds in trade accounts, increased foreign direct and portfolio inflows, lower interest rates and stabilised currencies.

 'Despite recent rallies, Asian stocks remain at massive discounts to earlier ratings and the medium-term outlook is extremely positive,' Mr Durham said.

 'The recovery in Asia will be faster and stronger than any in the United States.'  However, he felt some markets were overheated and should see a correction or consolidation for a period.

 Mr Durham said Bankers Trust (BT) had modestly underweighted Hong Kong, pointing out the Government's intervention in the stock and index futures markets.

 'Hong Kong will not be a major recipient of foreign investment flows as the others [Asian economies] will be,' he said.

 'I think the Hong Kong Government will start reducing its holdings and now is a pretty good time to do that, but I think there will be a supply overhang.'  He predicted a 12 to 15 per cent upside in the Hang Seng Index over 12 months.

 In other areas, Thailand, South Korea and the Philippines were favoured investment regions, but Taiwan and India were significantly underweighted by BT.

 Mr Durham said domestic political risks in some economies remained and there was still 'a healthy level of scepticism' in the investor community towards Asia.

 'Politics in India, Indonesia and Malaysia could destabilise the progress of those markets,' he said. 'Another significant setback in Japanese growth prospects could be detrimental and a sizeable US market correction would temporarily drag down the region, although the rebound should be quite sharp.'  He said the US was probably due for a correction later this year but there would not be a programme of aggressive economic tightening nor a crash scenario.

 Analysts agreed with Mr Durham's sentiments, saying Asia would see a strong growth rate.

 However, some said the Government's intervention was not a substantial hindrance to foreign investment.

 Daiwa Securities Asian equity vice-president Michael Liang said: 'I think Asia will have a superior growth rate than that of the US and Europe.'  He said as Hong Kong was still dependent on the mainland, it could take longer to recover fully.

 However, he thought it was risky to underweight Hong Kong. 'I think Hong Kong is still one of the largest equities markets in the world and if you want Asia, then you need to buy Hong Kong.

 'The overhang of the Government's share portfolio will not play a major role.' 



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BT bullish on Asian equities, but keeps HK underweighted