Further Downside Risk Predicted at EMTA Forum in Hong Kong
Analysts and investors continued to voice their concerns over the state of global markets at EMTA’s third annual Hong Kong Forum. The event, held October 27, 2008 at the Mandarin Oriental Hotel, was sponsored by ING Wholesale Bank.
ING’s Tim Condon began the event’s panel discussion by polling speakers for their thoughts on the markets going into 2009. Charles Li of Spinnaker Capital replied that although the "visibility is poor," the first half of 2009 would likely prove even more difficult than the current environment, although improvement could occur during the second half. ING Investment Management’s Joel Kim argued that while Asia is fundamentally in better shape, markets are likely to deteriorate further before they improve. Dong Tao (Credit Suisse) was hopeful that any further sell-offs will be country-specific rather than general in nature, although he noted that the G-3 slowdown made all of Asia vulnerable. Timothy Tan of Oasis Management conceded that he was the most bearish of all, believing that financial markets will get "a lot worse" and that a vicious credit cycle was possible.
As for the most vulnerable nations, Li noted that South Korea, while battered by the markets, was in better shape than during the 1998 crisis with improved levels of reserves. However, the Korean banking system was overstretched and is worse off than a decade ago. He expressed disappointment that officials had not resolved banking issues in recent years "when they had the chance." Several panelists concurred that a sovereign default by Seoul was unlikely, while Kim urged that the Bank of Korea act quickly to restore confidence.
Tan voiced greatest concern for the Philippines, which he opined could be greatly harmed by decreased worker remittances. He added that, generally, Eastern European countries were more likely to default than those in Asia, and while the EU would likely try to avoid such a scenario, member states might be overstretched salvaging their own banking sectors.
Turning to China, Tao argued that while a slowdown had been widely anticipated, the huge domestic demand and a fairly underleveraged domestic financial system provide some level of support. "Thus we expect a slowdown, but not a crash, in China," he stated. He observed that while investors would have recently been disappointed with 8-9% Chinese growth, the economy could actually now grow at an even slower pace and a return to double-digit increases was not likely "anytime fast." Tao underscored that the property market posed a much more serious threat (an opinion seconded by other speakers) than the domestic equity market, as a decline in values could spark a consumer confidence crisis.
Panelists offered a variety of signs which could presage the end of the current crisis, such as the re-opening of the high-yield market. Kim advised investors might need to demonstrate patience, stating that "credible steps" have been taken and would take time to filter through.
The event concluded on a somber note. Panelists largely concurred that the market is unlikely to tighten significantly in the near-term. Li believed that cheaper entry points might occur in 2009, and cautioned that investors should be "very picky." Tan predicted that corporate downgrades were likely to occur, though sovereigns might fare better.