Admittedly, a lot has changed. Most Western investors are disenchanted with emerging markets, while in the mid-1990s they were starry-eyed about their potential. And among the countries many investors have scratched off their list are Indonesia, Malaysia, the Philippines, and Thailand--formerly investment darlings. These countries' politicians and businesses never pushed reforms started after the 1997 financial crisis, and their markets have shriveled. Meanwhile, Japan, once the most dynamic economy in the industrialized world, seems stuck in bad-debt hell.
Still, several Asian nations are likely to get a bounce in the New Year. The big tech producers--South Korea, Taiwan, and Singapore--stand to gain from a U.S. recovery, while China should get a boost from growth in domestic demand. The top plays are South Korea and Taiwan. Korea's benchmark Kospi index is up more than 40% from its 2001 low of Sept. 17 and is still way off its recent high. While most Asian economies contracted in the third quarter, Korea grew by 1.8%. Investors say there has been a sea change in corporate governance. The star is Samsung Electronics Co., the big chipmaker and purveyor of mobile handsets. Despite the downturn, Samsung will land a $2.4 billion profit this year. "Once the IT industry recovers in the U.S., Samsung will be the first to benefit," says Hwang Chang Joong at LG Securities Co. in Seoul.
Taiwan, which depends more on U.S. demand for its semiconductors and electronics, is an iffier bet. The island's economy contracted by 2.2% in 2001. But its stock market has also rebounded by 40% since its post-September 11 low. Chip foundries Taiwan Semiconductor Manufacturing Co. (TSM
) and United Microelectronics Corp. (UMC
) report surprisingly strong sales.
The big risk for Asia remains Japan. Recent statistics are grim. For November, bank lending dropped 4.3% year-on-year, and wholesale prices fell 1.4%. Pressure is rising for the Bank of Japan to weaken the yen sharply in order to boost exports, which would hurt exports from other Asian economies and the U.S. "If the yen keeps falling, then a lot of Korean companies' competitiveness will be badly hurt," says Park Kyung Min, chief executive officer of Hangaram Investment Management Co. in Seoul. The message: Tread carefully in a region that could be full of opportunities--but also unpleasant surprises. By Bruce Einhorn
With Brian Bremner in Tokyo and Moon Ihlwan in Seoul