Premature to get bullish on Asia, says Fleming

LONDON, February 16: Despite the sharp runup in Asian markets since the beginning of the year, it is too early to forecast a generalised ral...

LONDON, February 16: Despite the sharp runup in Asian markets since the beginning of the year, it is too early to forecast a generalised rally in emerging markets, international investment firm Robert Fleming said on Monday.

"We feel it is premature to become very bullish," the British investment bank said in a research note. "In Asia, we are decidedly cautious on a six months view; in Latin America, we are somewhat wary, though seeing value in certain markets, notably Brazil; and in Europe, Middle East and Africa (EMEA), we are still advising a risk-averse approach to market selection."Fleming said that Asia’s Chinese New Year rally would not be sustained for very much longer. "We are only now beginning to feel the real impact of the massive financial dislocations unleashed on Asia in the second half of last year."

Inflation in the region was likely to pick up sharply, Fleming said. And a turnaround in Asian nations’ current account may flounder. Exporters relying on imported raw materials and machinerymay find it difficult to exploit the theoretical cost advantages of currency depreciation. A lending crunch in Asia may also make it difficult for exporters to get credit.

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Fleming is advocating underweight positions in Indonesia, Malaysia and the Philippines. In Latin America, Fleming said it was too early to pick a bottom in Chile and Venezuela.

The outlook for Argentinean shares is positive, as investors become convinced that shares will benefit from regional growth. Fleming said it had upgraded Poland to overweight.

Fleming said its strategy was to construct a defensive portfolio in EMEA, in anticipation of declining capital flows to emerging markets in 1998 Fleming is overweight on Hungary, while advocating underweight positions on Russia, Slovakia and Turkey.

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