Prospects for the Far East region remain uncertain and the outlooks for the various markets differ m...
Prospects for the Far East region remain uncertain and the outlooks for the various markets differ markedly.
China is pressing ahead with economic reform. The economy is expected to grow by over 8% this year, with similar growth forecasts in 2001. China's demand for capital has led to a steady procession of Chinese companies listing on the Hong Kong stock market.
Indonesia, Thailand and the Philippines continue to suffer from a lack of restructuring. This is impacting upon investor confidence and has resulted in less foreign direct investment.
The Indonesian government still owns around 80% of the country's industrial assets as a result of the nationalisation of bankrupt banks. These assets need to be returned to private ownership to ensure a meaningful recovery. In the Philippines, the economy continues to be plagued by corruption. In Thailand, the pace of restructuring of bad loans in the banking sector remains too slow.
Supporters of the Singapore market would cite the 9% GDP growth the economy is tracking and the relative resilience of the stock market as evidence that the country is moving in the right direction. Certainly, domestic confidence is reasonable but consumer lending and slow take-up in the residential property market suggest a quiet time ahead.
South Korea's excesses of over borrowing have been well documented. Commitment to sorting out balance sheets is almost universal at senior management level. Ability to do so is still determined largely by government. Until the mentality changes from one of requiring chaebol companies to cross-subsidise unprofitable group businesses, foreign investors cannot be expected to commit capital to the market. Some signs are encouraging, for example, the bankruptcy of Daewoo. Others are less so, such as the Government's insistence that one of the major telecom operators adopt a certain technology when an alternative would be preferable.
For the Korean banks, the massive exposure to corporate bad debt and the desperate need for new capital injections are overwhelming. Consolidation is needed; chaebol restructuring is vital; managers need to address the lending culture and make it incorporate credit/risk analysis and capital markets need to be developed to produce alternative means of funding.
At the moment, this seems a tall order.
The direction of Asian markets remains largely dependent on the direction of the US economy. In 1998/99, countries in Asia exported their way out of their problems.
However, domestic demand is still insufficient to pick up the slack if the US economy slows down, and there has been insufficient restructuring to create better managed companies and economies. The Asia Pacific ex Japan region can be expected to meander into 2001.
Mary Whitehead is director of Asian equities at Clerical Medical
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