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Full Recovery for Japan Still Not Within Sight Market Q&A with Leslie Khoo, economist, Thomson Global Markets October 29, 1999 Web posted at 2 a.m. Hong Kong time, 2 p.m. EDT
Also in this interview: • "If you're overweight in a country, you're not going to knock it" Q: Issue one is Japan. Seasonally adjusted September industrial production numbers were down nearly a percentage point month-on-month. Retail sales were down 2% year-on-year. The yen is stronger than ever and export-driven companies like Sony are losing out. But the Nikkei is just fine, and word has it that Japan is actually, dare we say it, recovering. What do you think? A: Full-fledged recovery is still not really within sight, I don't think. I would reckon that the younger generation would like to dismantle the keiretsu, but the senior management will cling to tradition. A lot of the figures that look positive, like the forecasted industrial production for November, which is 3.8% growth, are only positive because there's been such a low base. So I don't feel too optimistic about it. Nissan was quite dramatic, and there have been a lot of bank mergers, but it hasn't been widespread yet, and it won't be until you see a generational shift.
A: Interest rates will increase another 25 basis points by the end of the year, if not after the Nov. 16 Fed meeting then after the next one on Dec. 21. And that's it. Hong Kong will obviously feel it the most, as they're basically tied to U.S. policy. But we're not going to see the U.S. economy really slip. It's going to continue to grow next year and the Dow is not going to crash. Q: When is Malaysia going to rally? A: Getting back into the MSCI will obviously bring up sentiment a bit, but is it going to be a bull run? I don't think so. I think the good news coming out of Malaysia is a lot longer-term than that. Malaysia's still got 12.4% nonperforming loans. And remember that the KLSE has already gone up quite a bit in the past two weeks. Since Monday the 18th it's gained 5%. But volume's pretty weak, and it's going to stay that way for awhile. The rally is not going to happen within the next couple months. Q: Korea's up. Anything to do with Daewoo possibly reaching an agreement with its creditors? A: Well I think that's primarily a technical correction. And Daewoo hasn't reached an agreement yet--I've got my Reuters screen up now and foreign creditors are saying there is still a ways to go. That's definitely true. There are problems with Daewoo the chaebol, but then there are also all of Daewoo's small-time suppliers and subsidiaries to consider. The real problem is the Korean government. I was reading the Korea Herald the other day, just a straight news article, and it said "Central government encourages the banks to lend money to the small suppliers." I was thinking, "Oh my god, that's what China said all those years about the SOEs!" Q: So why does every fund manager I speak to feel so compelled to point out Korea's great "economic fundamentals" and play down the chaebol problem? A: If you're overweight in a country, you're not going to knock it. I suspect a lot of fund managers are positive because they want to be, because they've got money in Korea and the index is so low right now and they can't afford to sell. Q: Good point. And while we're on the subject of restructuring, how do you feel about China? A: Four state banks control 90% of the money--and 6% percent of their loans are unrecoverable. Not nonperforming--there's no good official figure for that, although word on the street is that it's about 25%--but totally unrecoverable, as in forget it. That's a problem. There isn't the political will for WTO right now, either--I really don't think that is going to happen. So I'm not very bullish. Interviewed by Maureen Tkacik/AsiaNow Write to us at mail@web.timeasia.com Search for recent Market Q&As
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