Movers and shakers: technology manufacturers and other companies with global exposure will be the first to bounce back in 2002 - Cover Story - Asian economy expected to recover as US recession ends - Statistical Data Included

Business Asia, Feb, 2002

INVESTORS SUCH as Husan Pai are betting that Asian stocks with global exposure will gain the most in 2002, as they ride on the coattails of an expected US recovery that may come as early as the second half.

Japan's Toyota Motor Corp, Korea's Samsung Electronics Co, Hong Kong's Hutchison Whampoa Ltd and HSBC Holdings Plc, and computer-related companies, are among stocks investors tip to benefit from a pick up in US and global demand this year.

"If there's a recovery in the US in the second half, I would look to buy Hutchison and HSBC to capture the global improvement, and exporters," said Pai, who helps manage about US$3 billion in Asia, excluding Japan, at Credit Agricole Asset Management Hong Kong Ltd. "2001 was my toughest year in the past decade."

Much is riding in Asia on a US-led recovery after the 11 September attacks further stalled growth in the largest economy.

Companies such as HSBC have global operations, while Australia's News Corp makes two-thirds of its operating profit in the US. Hong Kong's Li & Fung Ltd helps US companies source clothing products in Asia.

The 11 US interest rate cuts last year and increased Government spending after the September terrorist attacks will trigger a rebound in the largest economy, investors are hoping.

"We are already well into a stealth bull market," said Ken Courtis, vice chairman for Asia at Goldman Sachs Group Inc. "The markets in Korea, Hong Kong, Taiwan and Singapore are going to do very well over the next year, and you are going to see funds overweight those markets."

Last year, the Nikkei 225 stock average shed a third of its value in US dollar terms, while the Topix index lost 30 per cent of its value, the second annual loss for both indexes. The Nikkei 225 is the world's third-worst performer in 2001. Hong Kong's Hang Seng Index slid 24 per cent and Singapore's Straits Times Index shed 21 per cent.

Korea, Asia's third-largest economy, will probably expand 4.1 per cent in 2002 after growing 2.7 per cent this year as exports rebound.

Korea and Taiwan, which export most of their mobile phones, computers, and computer parts to the US, were among the world's top 10 best-performing markets in the last three months of 2001, indicating the slowdown may be ending.

Both markets also rose for the year, with the Kospi index up 30 per cent, making it the world's fourth-best performing market.

And in Japan, exporters are shaping up as the only bright spot as the economy is mired in its third recession in a decade.

Further weakness in the yen, which fell to a three-year low, will boost exporters' bottom lines. Honda Motor Co, for example, saw a weaker yen boost its operating profit by 23 per cent in its fiscal first half.

"As long as the yen weakens, we can be sure to look towards Japanese exporters for a boost" in the market, said Tetsuo Kawai. "In fact, that's the only hope for a Japanese recovery."

Spending on technology may increase as concerns about 11 September and the war on terrorism recede, and rate cuts boost capital investment, especially in information technology.

Japanese computer-related companies, which are now responsible for almost a quarter of the nation's exports, may be among the beneficiaries.

"With the US recovery, IT demand will pick up in the first half and companies such as Kyocera Corp, Tokyo Electron Ltd and Rohm Co have a very strong core competitiveness," said Hisanori Gondo from ING Investment Management Ltd in Sydney.

In a sign demand may be recovering in other parts of Asia, Korea's Samsung Electronics and Hynix Semiconductor Inc raised their memory-chip prices twice in December, citing a rebound in the personal computer industry.

In Taiwan, companies such as Quanta Computer Inc, which make computers for Dell Computer Corp and Apple Computer, and Hon Hai Precision Industry, the island's largest computer parts maker, are favoured as a fifth of Taiwan's exports of mainly electronics are shipped to the US. Chartered Semiconductor Manufacturing Ltd and Venture Manufacturing Ltd in Singapore will be among companies on investors' radar screens next year on optimism they'll sell more of their products.

"We are positioned for a recovery in that sector," said Tan Yuh Harn of SGY Asset Management Ltd. SGY Asset has "slightly" more computer-related stocks than the weighting in Morgan Stanley Capital International Inc's Singapore Free Index.

China is expected to attract the lion's share of global funds into the region in its first year as a member of the World Trade Organization.

Banking on investment opportunities arising from WTO membership, investors flocked to Chinese shares, making the foreign-currency indexes the world's best performers for a second year.

The Government expects the economy to grow seven per cent next year from a forecast of 7.4 per cent this year.

"This global recession or slowdown is not going to knock China off course, unless there's something out there that happens that no one can predict," said Goldman's Courtis. "Global investors are going to be polarized on North East Asia, and China is going to get an overweight proportion of that money."