1999 was a recovery year for most of the Far East but the market's insatiable appetite for technology...
This year, as investors world-wide start to look more critically at fundamentals, growth should slow and the market will show increased consolidation in the tech and telecom sectors. But those countries without a strong entrepreneurial culture in the area of the internet and telecoms will remain out in the cold.
In the year to December 1999, the S&P/IFCG Korean Index grew 181%, while the Philippines crawled up 1.3%. This stunning difference in performance can be largely attributed to the vitality of Korean technology and telecoms companies, the DRAM suppliers and the capital they could attract. Even previous strongholds like Singapore have taken a beating, as their technology industry has failed to keep pace in the high-speed race towards mobile data transfer and internet services.
Nicky Ludlam, investment director for Ashburton, says: "In the first quarter of the year, Korea excelled in the area of telecoms and technology. The valuations compared to Japan were compelling.
"Hong Kong, Korea and Taiwan are leading the way. In a lot of the smaller countries, like Thailand and Indonesia, there are few companies where you get exposure to that technology."
Guy Boden, S&P Fund Services' lead emerging Asia analyst, says: "Many emerging Asia markets are benefiting from their strong position in telecoms and technology so there is considerable potential for accelerating the region's restructuring and providing a new growth story."
Fund managers who picked up the cyclical recovery at the start of last year, and then switched into technology stocks in the second quarter, made the biggest gains. The top performing fund managers were fully invested on the whole.
S&P's head of research, Linda-Jane Coffin, says: "Last year in our Emerging Markets Asia report we commented that fund managers were cautious, looking for clear evidence of reform. This seems to be coming through, with most managers now reporting a fully-invested portfolio, and even some that are geared."
In the last couple of weeks, however, Ludlam has noticed something of a chill in the air. The liquidity-induced boom that drove the Asian markets was sustained when underperforming fund managers bit the bullet and joined the tech stock chase. The market has started to change. Ludlam says: "To ignore stocks with high valuations is still dangerous, but we now focus on stocks with real strength, sustained momentum and quality management."
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