Markets depressed by virus outbreak offer buying opportunity

Atypical pneumonia fears infected regional equity markets last week but investors with a risk appetite should consider wading in at present levels, according to some investment analysts.

'Definitely [Severe acute respiratory syndrome] is not positive news for the Asian markets and extremely negative for Hong Kong for obvious reasons,' said investment adviser Marc Faber. 'However, the Asian markets have a low valuation compared to the US and to Europe ... this could represent a buying opportunity into Asia.'' South Korea led losses for the week with a decline of 9.3 per cent, and remains down 9.7 per cent this year. Taiwan's 9.11 per cent weekly drop brings it to a 4.9 per cent fall for the year. Manila lost 6.49 per cent last week but is 3.04 per cent higher than it was on December 31. Bangkok fell 4.15 per cent, still up 3.38 per cent this year, while Singapore fell 4.16 per cent taking the year's losses to 8.34 per cent.

China's four main stock indices all dropped more than 6 per cent last week but remain sharply higher this year. Hong Kong's fall was relatively muted at 1.98 per cent, but it is almost 10 per cent lower this year.

Mr Faber sees little further downside for the region, unless Sars proves to be a global pandemic of the proportion of the black death in Europe that wiped out 30 to 40 per cent of the European population. In that case, the Sars market contagion would spread to the US and Europe, which are already overbought in his opinion.

'In relative terms, even under the worst-case scenario, for the portion of assets that you want to allocate to equities you ought to buy Asian equities and not US equities,' he said. 'Obviously if Sars is a disaster then the best is to be in bonds. I am relatively conservative on equities.'

ABN Amro strategists said last week the picture in Hong Kong was becoming more attractive for long-term investors and the risk-reward balance was improving. In their fortnightly Asian Navigator report, they said valuations were attractive in Singapore and the Philippines, with implied risk premiums above 1998 levels. It has upgraded Malaysia to an overweight position in the present environment, in light of its defensive combination of value and growth prospects.