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Asia is shaping up as a shelter from the corporate storm

As contagion from corporate accounting scandals threatens to spread from the US to Europe, investors are contemplating the irony that Asia may now provide shelter from the storms buffeting Western equity markets.

Five years after the start of an Asian financial crisis that left shareholders wondering if they would ever feel safe in the region again, there are signs money is returning in the wake of the alleged WorldCom fraud and a whiff of similar woes in Europe.

Despite a tumble that sent the broad US market to its lowest level since early 1998, Asian stocks mostly strengthened yesterday, eschewing the usual knee-jerk response of following Wall Street lower.

The Tokyo market rose almost two percent, Singapore was up around 1.3 percent and Hong Kong advanced almost one percent.

"It's surprising really that the market is up after NASDAQ's sharp fall but certainly we are seeing some money flowing from the US and Europe to Asia," said Frederick Tsang, a director of China Everbright Securities in Hong Kong.

"US and European stocks have come down heavily because of fears about corporate accounting practices and earnings numbers. But in Hong Kong a lot of companies are still owned by families who do not have as much incentive as US companies to use accounting practices to boost profits."

Financial analysts say it is ironic that investors are putting their money in a region that many see as having laxer accounting standards than the West. Investors have expected a discount on prices in some of Asia's murkier markets to justify that risk.

But with improvements in Asian corporate governance since the 1997/98 crisis and revelations that US numbers are far from immune to manipulation, the gap between accounting standards is narrowing, said Eddie Lee, strategist at DBS Vickers Securities in Singapore.

"I think that's made it a little more equal," he said.

With that in mind, it's easier to directly compare the valuations of the US and the Asian markets and conclude that Wall Street is overvalued.

Shares in the US S&P 500 index are trading at around 28-29 times forecast earnings, compared with numbers in the low teens in Singapore, Hong Kong and some other Asian markets, said Lee.

Still, in a sign that Asia still has practices that might raise eyebrows in the West, there was talk Japanese public pension funds were buying shares to keep the market firm before Tokyo sold shares in Japan Tobacco.

The S&P 500 fell 2.12 percent to 948.09, its lowest since Jan. 12, 1998. The technology-laced NASDAQ fell to a five-year low for the second straight session, dropping 3.28 percent to 1,357.82. The Dow closed down 1.12 percent at 9,007.75.
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