UK joins in the bounce

Far East focus: as Asia rallies, new questions arise. Will China devalue? Is Europe safe? And can Japan afford the Olympics?
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LONDON-based investors piled back into Asia last week, adding their clout to the rebound in regional stock markets and prompting commentators to declare the eight-month-old financial crisis in remission.

Hong Kong's Hang Seng index closed at 10,485 on Friday, 17 per cent up from the last day of trading before the Chinese new year. Some individual stocks did even better: the Chinese auto company Quingling Motor peaked at 40 per cent up at one point last week, before falling back. CITIC Pacific was up over 20 per cent on Monday. Elsewhere in the region, the Malaysian market was up 24 per cent on Tuesday.

"Investors are willing to take a medium-term view on Asia now," said Ahmed Salam, a fund manager at United Bank of Kuwait.

Mark Weavis, UBK's head of alternative fixed income, said that although there were some concerns over Korea, "the country has a large manufacturing base and a strong work ethic. We were buyers of quasi-government paper like Korea Development Bank and Korea Telecom."

However, the move back into Asia by London fund managers was fragile. "We actually saw money coming out of Korea last week," said Bulbul Barrett, a saleswoman on UBS Securities' North Asian trading desk. "People were happy about the deal refinancing Korea's banks, but some corporations have gearing of 1,000 per cent." Still, the prevailing sentiment in London was "anxious buyers not wanting to be left behind", said one Far Eastern stockbroker.

The Korean bank deal nine days ago, which effectively refinanced short- term debt at a cost probably 50 to 70 basis points better than the best expectation, was the catalyst for most Asian markets to stage strong recoveries Investment managers in London, such as Schroders, Mercury, Perpetual and Standard Life were cited as buyers, especially in Hong Kong and Malaysia. With London and Wall Street posting impressive gains, investors are more confident about allocating assets to Asia.

Thailand and Korea have seen their currencies appreciate smartly as well. This has meant that certain markets and certain stocks have been targeted by fund managers. Companies with relatively low debt and strong exports saw the sharpest rises.

UK-based unit trusts also bought shares, trying to capitalise on the currency upswing.

"Last week's bounce was largely a function of investors not wanting to be caught out if markets rise quickly. However, I do not sense a serious conviction that we have turned the corner," said Stephen Rhodes, director Asian markets at Nomura International in London.

q Gianluca Ricardo is the pseudonym of a City financial executive.