Marc Faber, the well-known prophet of doom and gloom, said in an interview in Asia Inc that agricultural commodities (oil palm, coffee and sugar) from Asia are the best things to hold for investors.

He recommended this along with gold bullion — for which prices would multiply 10 times over to US$3,000 an ounce.

However, his comments have raised some concern that he was reading the economic undercurrents of Asia and predicting a deeply rooted recession around the corner.

"In times of an economic downturn, the best bet for investors would be holding on to agricultural stocks and gold, considered a good hedge against the exposure to technology-related stocks or the property stock markets," said Arjuna Tjandra, an investment executive in a risk-consultancy agency based in Jakarta.

Both these markets have been badly mauled and have shown few signs of recovery in the past 12 months.

A equity dealer with state-owned Bahana Securities in Indonesia, Iwan Yoniton, pointed out the risk involved in holding on to property and technology stocks.

"Many of these investments in property, banking and technology are underperforming, and it's symptomatic of the economic downturn in the Asian region," he said.

"I advise investors to look at strong agricultural-based portfolios and brick-and-mortar businesses with strong fundamentals rather than invest in shares that are highly speculative and considered high-risk."

Property prices drop

The fall in commercial and residential property prices is shared by Hong Kong, Malaysia, Thailand, Singapore and South Korea. The only exceptions to this rule are India and China. Both commercial and residential property prices are at an all-time low.

"Regardless of whether you are looking for property in Thailand, Indonesia or Malaysia, prices are only two-thirds of what they were originally valued," said Quek Meng Lee, of an international property consultancy house based in Malaysia.

"It's a good time to go bargain-hunting for strategic buildings and areas and during the upturn sell them for a quick buck."

Over-exposure to tech sector

The technology market has received a severe mauling as well. Technology growth was the pride of both Singapore and Taiwan.

However, both these countries were overly exposed to a high-tech sector almost entirely dependent on the overall performance of the world and particularly the US electronics market.

Now their gross domestic product (GDP) growth rates have been cut for most of 2002 to forecasts of less than 4 percent and less than 2 percent growth respectively.

Singapore faces the worst manufacturing and construction contraction in more than 10 years, and Taiwan hangs precariously on the brink of recession.

Taiwan, dependent on the semiconductor, integrated-circuits and foundry-design services, has seen a slowdown of more than 10 percent of its export orders since a year ago.

Lower GDP growth

And Hong Kong expects to see GDP growth of less than 3 percent for 2002 instead of its high of 10.5 percent last year. Hong Kong has suffered from a deflationary spiral of falling prices for the past three years, and a double-dip recession has pummeled its general trading indices.

Even Malaysia's economy was not spared when its prudent government induced pump-priming measures. Its controlled currency situation has not saved it from the general Asian downturn either.

Its GDP growth for 2002 has been revised downward to an average of 5 percent, barring any unforeseen global trade disasters.

Share prices

Chi Lo, the regional head of research for Standard Chartered Bank Global Markets in Hong Kong, wrote publicly saying that the fall in Asian share prices over the past 20 months compares to the 1997-98 decline.

He suggested that Asian markets had been expecting a regional economic downturn much earlier than the US markets.

"The extent and duration of the decline also suggest that many Asian markets might be passing through the maximum stress points."

Likewise, margin trading for large companies in Asia has eroded as well. The market capitalisation for large capped companies is only one-third of its PE (price to earning) ratio or net book value.

And for the past few weeks, the Asian bourses have haemorrhaged badly, to the point of being anaemic.

Steve Fisher, an economic management consultant for Strategic Consulting Inc based in Atlanta, said the earnings fallout for such companies as Fujitsu, Ericsson, Apple Computer and even Taiwan Semiconductor Manufacturing Co (TSMC) is a sign that tech stocks have yet to bottom out. The recent slide in Wall Street and the battering of its tech index have not helped either.

FDI shortfall

It's also a growing concern that foreign direct investment (FDI) trickling into emerging Asian countries such as Thailand, Indonesia and the Philippines is falling short of national expectations.

"ASEAN economies since last year received just 27 percent of the FDI that flowed to developing countries in Asia, down from around 60 percent in the early 1990s," said Anwar Al Haq, a regional economist for a France-based multinational bank.

"This shortfall could be attributed to its structural reform problems that continue to worry investors."

He said China seems to draw the bulk of the FDI budget from international investors.

"China received close to 60 percent of FDI last year and this year it's expected to increase by another few percentage points," he added.

Competition from China

China is turning into a real threat for ASEAN countries. The stabilising Chinese economy and its stellar double-digit growth have not failed to impress. As a percentage of its GDP, China absorbs as many imports from Asia as Japan.

China is also trying to attract semiconductor and wafer fab investment that was previously the forte of Taiwan, South Korea and Singapore. Its movement up the manufacturing value-chain has created butterflies in the stomach of its older rivals.

And it is competing with Thailand as well in lightweight manufacturing in the tool-and-die and precision-molding industry that will easily be worth $2 billion by the end of 2003. Thailand, in the meantime, is trying to establish itself as an automotive tool-and-die centre for Asia.

Can even the stellar growth of China at the expense of its neighbors possibly prevent the repeat of the Asian monetary crisis of 1997 and 1998?

ASEAN secretary general Rodolfo Severino, at the recent ASEAN summit in Brunei, said US-led volatility in the global market is unlikely to plunge East Asian economies into a 1997-type financial crisis since the region is now protected by huge current account surpluses and foreign-exchange reserves with low external debt risk.

"In order to avoid being hit by rogue currency traders, there is a network of six bilateral currency swap arrangement in place, with funds in excess of $17 billion, led by China, Japan and South Korea," he said.

External shocks expected

According to economist Chi Ho, Asia is not as weak as before. Even the effect of Argentina's financial woes has been confined to the South American market, where the Asian markets showed only measured response in terms of rising bond spreads and falling stock prices and currencies.

"Cross-border hedge funds are not as powerful now as they were four years ago. Also, Asian countries' external accounts have improved to absorb external shocks where its current accounts have turned into surplus since the Asian crisis. Foreign debts have been pared and foreign exchange reserves rose sharply," he said.

Despite such assurances, the fact remains that economic growth in the Asian caucus is slowing down. It has also been found that Asian economies are increasingly vulnerable to a number of external shocks.

These shocks include the slowdown in the US economy, the softening of Asia's information-technology market and even the volatility in crude-oil prices.

More important, national reforms are sluggish in restructuring heavily indebted companies, restoring badly damaged banking systems, improving corporate governance and curbing corruption that is endemic in most Asian economies. There are also inadequate procedures in place for bankruptcy and liquidation of corporate debtors.

"But these limitations are slowly being addressed," assured Anwar Al Haq, "both by the international funding associations like the World Bank and national governments."

To reduce its vulnerability to financial turbulence, Asian economies must clean up banks, restructure domestic corporate debt and implement good governance policies that would benefit Asia in the long term.

Keeping its house in order, and employing prudent fiscal policies is the first step in surviving the economic tailspin. — GVNN