Asia funds, fearing falls, unwilling to buy shares

A man looks at an electronic board at a stock exchange in Shanghai January 22, 2008.

HONG KONG (Reuters) - Asia fund managers with cash to invest are largely holding it back from battered stock markets, in the belief shares that look cheap compared with just weeks ago can get even cheaper.

With investor panic feeding on itself and the risk of more bad economic and financial industry news, fund managers said on Tuesday it was safer to sit on what cash they have and confine holdings to the lowest risk stocks possible.

"It's too early to call whether it's a bottom," said Alistair Thompson, deputy head of Asia Pacific equities at First State Investments in Singapore.

"You've had five consecutive years of very strong growth in Asian markets and we have been long, long overdue for a correction. Valuations look expensive, though there are pockets of value emerging," he added.

Thompson, who helps to manage about $26 billion in global emerging and Asia-Pacific assets, said pockets of value included Singaporean banks, though he did not name any specific stocks.

He said its Asia Pacific funds were also overweight gold producers, mainly in Australia, on expectations inflation pressures and uncertainty would boost gold prices.

Otherwise, he said Chinese, Indian and Australian stocks still seemed pricey. Indian shares are trading at around 18 times forward earnings, according to Reuters data, down from 21 a few weeks ago.

Hong Kong-listed shares of Chinese firms have fallen to around 14 times from 18, while Australia's S&P/ASX 200 trades at just over 13 times.

SIT THIS ONE OUT

Stocks tumbled across Asia on Tuesday, with many markets down around 4-8 percent, as panic gripped markets that a U.S. recession could derail global economic growth.

"It's painful. Probably there will be a bit more pain to come," said Mark Konyn, chief executive of Allianz-owned (ALVG.DE) fund house RCM.

"Many investors were sitting on pretty good profits from the previous years, so they're basically pulling back ... I don't think there's a huge change in expectations, it's just the realization that the slowdown is upon us."

Konyn said the firm was not raising cash in its $17 billion in Asia Pacific portfolio, having already trimmed exposure to financial companies, exporters and Japanese equities, and gone overweight Hong Kong property shares.

But the Hong Kong-based executive said the firm was also not buying in at current levels, preferring to wait until some stability emerges.

"My sense is that people might want to sit this out and see how far it goes. The reaction has been so abrupt in the last couple of days," said Binay Chandgothia, chief investment officer for Principal Asset Management's Hong Kong operation.

"There's a lot of panic. There's a lot of fear factor. Really, it's difficult to figure out where the support is going to come from."

While some big resource companies and banks are starting to present buying opportunities, investors should be aware of the risks posed by the upcoming Australian company reporting season in February, said Warwick Cumming, deputy head of equities at Tyndall Investment Management in Sydney.

"The market is extremely edgy. Any company that discloses negative news in this environment, the market is likely to overreact," he said.

SOME BUYERS

Not all fund managers have deserted the market. Khiem Do, who overseas about $15 billion in Asian equities as head of Asian multi-asset investment at Baring Asset Management, said the firm was moving stocks in and out of its portfolios as normal.

"The time to raise cash was a few weeks ago, but not today. It's suicidal really to sell good stocks today, unless you have to sell because of redemptions," he said.

And Patrice Conxicoeur, chief executive of HSBC's Sinopia Asset Management (Asia Pacific), noted the firm would be putting money from its newly launched climate change fund to work at "extremely attractive" levels.

"There are people who are fond of saying that the bottom is when everybody has capitulated," he said. "We've seen markets becoming driven very much by fear. My gut feeling is we can't be that far from the bottom."

(Additional reporting by Victoria Thieberger; Editing by Jean Yoon)