Pessimism in Asia

Confidence among fund managers surrounding Asia''s economic buoyancy continues to slip, with only 11% of managers expecting a strong economy for the year ahead.

Research conducted by Gallup for Merrill Lynch shows that although global inflation and rate hike fears are falling, managers remain bearish on Asian equity markets. By contrast, optimism about China remains high, with 74% expecting a strong Chinese economy, and with buyers of Chinese equities outnumbering sellers by a record margin. With China's entry to the WTO imminent, 74% of fund managers feel strongly that the move will be a positive one for the region – a feeling echoed by a large number of foreign investors.

A growing number of Asian fund managers see their domestic equity market as undervalued. Many feel that a cut in interest rates is what is needed, and hopes have not yet waned that the Fed funds rate will be lower 12 months from now. 88% of US fund managers are confident that the next move in rates will be down, but they do not expect it to happen before the second quarter of 2001. Despite these depressing statistics, Asia remains the favourite emerging market and economists predict that the year ahead will see acceleration in the pace of corporate restructuring.

Trevor Greetham, Global Strategist at Merrill Lynch says, "A cut in interest rates would help Asian markets like Hong Kong which have a large weighting in financials." Moreover, for the first time more fund managers prefer value stocks to growth stocks.

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