International Business : Analysts See Plenty of Life Left in Southeast Asia’s Stock Rally

ISSUE: In 1993, billions of dollars’ worth of foreign investment flowed into the bourses of Hong Kong, Singapore, Thailand, Malaysia and the Philippines. Investors who jumped in early enough last year saw some sweet returns. But will the joy ride continue in 1994?

BACKGROUND: A few numbers tell a very compelling story. As of Dec. 28, Hong Kong stocks were up 110% in dollar terms since the beginning of 1993, while Philippine stocks had advanced by a head-turning 152%. The markets in Singapore, Malaysia and Thailand posted gains of 50% to 80% during the same period.

While the 1993 rally relied very much on the flood of overseas mutual fund money, there are signs that local investors are starting to get into the act.

For instance, Singaporeans poured millions of dollars into stocks last year, spurred by a government education campaign to encourage investment.

The campaign coincided with a massive sale of stock in Singapore Telecommunications Ltd. that turned half the adult population into stockholders.

OUTLOOK: Many of these markets are pricey, thinly regulated and dependent on foreign money. And, while getting a piece of the growth in Southeast Asian markets emerged as a fad in global investing in 1993, already there are those who see a bust in the offing.

“It’s quite wise to be sitting on cash right now,” said Timothy Wong, an analyst at Vickers Ballas Investment Research. “I mean, how much more can it go?”

While matching the gains in 1993 will be a tall order, a number of analysts said they believe the stock rally in the region has plenty of life left.

For starters, the economies of Singapore, Thailand, Taiwan and Malaysia are all expected to grow between 5% and 8% in 1994, according to the Organization for Economic Cooperation and Development’s forecast.

And China, the world’s fastest-growing economy, is expected to turn in a 13% advance in the year ahead--compared to a projected U.S. growth rate of 3% and little or no growth through most of Europe.

Also, while price-to-earnings ratios--a company’s stock market price divided by its annual earnings per share--certainly rose this year, the region’s markets still offer some bargains. Analysts watch the figure because a high ratio may signal that a market is becoming too pricey.

Consider that the Hong Kong Hang Seng index, which more than doubled in value in 1993, has a price-to-earnings ratio of 20.12, according to calculations by Bloomberg Business News. That compares to the Dow Jones industrial average’s 38.72 and Japan’s Nikkei-225’s 65.63. Both Thai and Singapore stocks are also well below these figures.

Also, some analysts see the increased involvement of local investors as a good omen for the markets.

In addition to liberalization in Singapore, Thailand has liberalized the domestic mutual fund market so commercial banks can launch funds. That should prompt more Thais, of whom only 5% have money in stocks, to shift into equities.

STRATEGY: To be sure, analysts warn that investors had better be selective, particularly about speculative stocks in markets such as Malaysia, where rumors can send stocks soaring and tumbling.

Much of the speculation is turning on which companies will benefit from a wave of big-ticket projects in Malaysia.

“There are opportunities out there. . . . Given the size of these projects, it is certain to create a lot of opportunities for prices to run,” said Phuah Eng Chye, research manager at PB Securities in Kuala Lumpur.

Yet given Malaysia’s loose rules on company disclosures, investors are having a difficult time figuring out which companies stand the best chances of winning lucrative contracts.

More broadly, all bets could be off if Beijing mishandles China’s runaway economic growth. Inflation is running a scary 20% in the major urban centers and 14.5% nationwide. If China were to tumble, the whole region would feel a chill.

Still, judging from the dazzling run-up in Hong Kong stocks--26% in December--investors still seem plenty bullish on China and the entire Southeast Asia region.

“Regional markets are helping pull us up here in Hong Kong,” said David Lavington, institutional broker at Morgan Grenfell Asia. “Usually the market flattens out” in December, he said, but international investors seemed to want to get into Hong Kong before the end of the year.

If that kind of sentiment continues, Southeast Asian stocks seem sure to hover in the stratosphere well into 1994.