Thu, Aug 01, 2002 page12

• With US down, Asia dosen't look so bad

  INVESTING The world's top performer has been Pakistan, with its main index rising 42 percent. Global investors are beginning to look elsewhere in Asia for big returns

  • BLOOMBERG
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  Salomon Smith Barney strategist Ajay Kapur says US and European clients keep telling him they plan to buy Asian stocks, the world's best performing this year. He wonders when they actually will.

  "When I talk to my clients they say: `Look we are buying,'" Kapur said. "Having looked at the numbers I am not sure where this huge inflow is."

  Asian markets fared better than US markets this year. Pakistan's stock index led the world, rising 42 percent in dollar terms, and Indonesia's was second with a 35 percent gain. South Korea's Kospi index rose 15 percent and Japan's Topix gained 3.4 percent. The US S&P 500 slid 21 percent.

  Yet non-Japanese investors sold US$3.2 billion more stocks on the Tokyo market then they bought in the five weeks to July 19, according to stock exchange figures, and a daily survey of brokers suggests they were net sellers for the past nine days. Non-locals in Taiwan were net sellers of US$1.4 billion since the start of May, including nine straight days of net sales to last Monday.

  "There must be enormous amounts of cash around waiting on the sidelines," said Pieter van Putten, chief executive officer for the Singapore arm of London-based Morley Fund Management Ltd, which manages US$1.9 billion in Asian investments.

  Some investors and analysts say Asia's rebounding economies -- and the strength of earnings among companies such as China Mobile (Hong Kong) Ltd and Hyundai Motor Co of South Korea -- may soon draw in more money from outside the region.

  "Sometimes underperformance can motivate action," said Salomon's Kapur.

  US-based funds specializing in Asia say people are already starting to notice the performance of Asian markets as they lose money at home.

  "We've actually been getting inflows to our funds," said Arjun Divecha, who manages the GMO Asia Fund and GMO Emerging Markets Fund, which have a combined size of US$1.67 billion.

  "Because of what's happening in the US, there is more interest in overseas investing -- especially in emerging markets." His GMO Asia Fund gained 19.5 percent this year.

  For now, international investors are thinking of cash, not South Korea. Fund managers from New York to Edinburgh say that a declining US stock market has forced them to put more money in cash, partly to meet demand from investors for their money back.

  Investors pulled US$2.9 billion in cash out of international equity funds in June and July, leaving them with a net outflow of US$1.03 billion this year, according to Cambridge, Massachusetts-based EmergingPortfolio.com Fund Research. Funds that invest in Asian equities outside of Japan saw net outflows of US$132 million in those two months, leaving them with net inflows of US$885.5 million for the year.

  The pressure from redemptions is showing up in figures published by the region's stock markets.

  Foreign investors cut their stake in Taiwan Semiconductor Manufacturing Co, the world's biggest maker of made-to-order chips, to 27.4 percent from 30.1 percent since the start of June. Non-local investors' stake in South Korea's Samsung Electronics Co has fallen to 53 percent from 60 percent at the beginning of the year.

  "Redemptions have been driving the market down as opposed to people changing their view of Asia," said Steven Bleiberg, who manages the US$29 million International Fund and other funds at Credit Suisse Asset Management.

  Asian investors have made the difference locally, stepping in to buy on the strength of their domestic economies. In the week ending July 19, when the S&P fell 8 percent, the Topix fell just 3 percent.

  South Korea expects economic growth to double to 6 percent this year, while Singapore and Australia are on track to grow 4 percent. Japan's central bank said this month the world's second-largest economy is moving closer to a recovery from its third recession in a decade.

  For your information

  By the numbers

  * Pakistan's stock index has led the world, rising 42 percent in dollar terms so far this year. * Indonesia's main index is in second with a 35 percent gain. * South Korea's Kospi index has climbed 15 percent, while Japan's Topix has gained 3.4 percent. * The S&P 500 in the US, meanwhile, has shed 21 percent.
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