Even as markets rally, executives fear bear trap

SINGAPORE (Reuters) - A stunning two-day rally in global stock markets is not a clear signal that the global financial crisis is past and may well prove to be a classic "bear trap," financial executives in Asia warned on Tuesday.

While governments and central bank have rushed to shore up the global financial system with injections and pledges of liquidity and capital, industry figures said renewed investor confidence could collapse as quickly as it returned.

Even if it doesn't, investors will have to contend with a global economic outlook that still looks grim.

"It's so fragile. Tomorrow if something happens or some negative news comes out I would be very sure everybody will rush to the door and that will cause another panic," Lim Boh Soon, chief executive of Kuwait Finance House's Singapore arm, told Reuters Wealth Management Summit.

"The major banks of the world have announced, but there are still a few names that haven't said anything. I am very puzzled. It cannot be. The fact is that we are all affected."

Asian stocks surged on Tuesday, with Japan's Nikkei up more than 14 percent, after governments around the world readied plans to take stakes in banks in an attempt to keep the global financial system from collapsing and throwing economies into a deep recession.

The yen fell broadly and the yield on the 10-year U.S. Treasury note hit a two-month high as investors ditched low-risk investments to scoop up heavily oversold shares as policymakers staged their biggest and most coordinated effort yet to kickstart lending markets.

Sources said the U.S. Treasury is ready to inject $250 billion into U.S. banks, echoing moves by other leading countries that have boosted confidence.

But many market veterans in Asia remained wary after heavy, panic selling last week.

"The mantra is still the same, buy during the sharp falls and sell on a rally. The markets will continue to fluctuate wildly...," said Peter Lai, director with DBS Vickers in Hong Kong.

While government and central bank moves are positive, there are some estimates that the United States could need as much as $2 trillion to stabilize the system, Badlisyah Abdul Ghani, chief executive of Malaysia's CIMB Islamic Bank, said at the Reuters summit in Singapore.

"If the assistance is insufficient to generate the needed confidence in the market, it might spiral to something that is worse than what we have seen. As we have seen in previous months, solutions that were put in were received with euphoria, then subsequently people started questioning is it really enough?"

CIMB is the world's top arranger of sharia, or Islamic finance, bonds.

The cost to governments of financing the rescue and impact of easy monetary policy could also prove damaging in the long term, some market watchers noted.

"You have inflationary monetary policies, fiscal policies, and debt growth that will really accelerate," said Marc Faber, managing director of Asia-based investment advisory firm Marc Faber Ltd.

"I'm sorry to say that the measures taken by the governments around the world, they do not address the core of the problem, which is over leverage. They address some of the issues and treat more of the symptoms than the cause of the problem."

Faber said markets will see further volatility and the risks are high for a "U-shape" recession in which the recovery is slow and arduous.

Even so, some financial executives said opportunities had emerged from the crisis, particularly among fundamentally strong companies that had been dumped in the panic, with some paying attractive dividend yields and trading at single digit price-to-earnings ratios.

"We don't want to predict whether markets will fall further or stock price will fall further, but ... there are selective opportunities. This is a big space that we're talking about, equities," said Bernard Lim, chief executive of the Singapore arm of South Korea's Mirae Asset.

(Editing by Kim Coghill)