Politics threaten regional recovery

MOST Asian share markets pushed higher again today as investors resisted profit-taking impulses, and instead continued to bet that prices are heading north as the global economy gathers speed.

That bullish story, coupled with the military defeat of Saddam Hussein, has underpinned a regionwide surge that has boosted most equity benchmarks by about a third since March.

Japan's Nikkei 225 reversed an early dip to nose into positive territory, climbing 19.90 points, or 0.2%, to 10,690.08. Its modest rise, led by banks and tech shares, came despite the lack of a lead from closed US markets and Tokyo's 3.2% jump yesterday.

What could complicate this benign picture, not just in Japan but also in other centres The answer, or at least one of rising risk factors in the equation, is politics. As autumn approaches, Asia has a calendar that is packed with elections and leadership changes as far as the eye can see.

'Malaysia will have a change of Prime Minister this fall, Taiwan has a Presidential election, as do Indonesia and the Philippines [in 2004],' said Citigroup in a note to clients. 'Each country but China and Singapore will have a legislative election by the end of 2004.'

It added: 'In this environment, politics will take on an unusually high profile for Asian markets, especially given how important governance and policy reform have proved in the aftermath [of the regional financial crisis and Sars].'

The same set of factors has also gone under the microscope at HSBC.

'Everywhere in Asia, politics is becoming a bit more critical,' said regional equity strategist Nilesh Jasani. 'It's not going to lead to people pulling out of Asia but, within Asia, it could certainly lead to a reallocation.'

Among individual shares, a brace of Japan's lenders stood out, benefiting from a rosy note from Goldman Sachs, which added Sumitomo Mitsui Financial Group and peer UFJ Holdings to its list of recommended stocks.

Analyst David Atkinson said their nonperforming loans had tumbled by close to half. SMFG surged 20,000 yen, or 4.8%, to 439,000 yen. Goldman reckons it could go on to hit 530,000 yen, upside of a fifth. UFJ rose a more impressive 33,000 yen, or 10.4%, to 351,000 yen. The bank's new price target is 466,000 yen a share, better by close to a third.

Tech shares gained on the argument that a healthier global economy spells higher demand. Advantest climbed 250 yen, or 2.9%, to 8740; Tokyo Electron firmed 170 yen, or 2%, to 8720 and Fujitsu was 11 yen, or 1.9%, better at 603. In Hong Kong gains were widespread as investors positioned themselves for a broad-based corporate rebound.

De facto flag carrier Cathay Pacific Airways, which struck a Sars-inspired low of HK$8.25 earlier this year, was up 15 cents, or 1.1%, higher at HK$13.60. The Hang Seng rose 24.57 points, or 0.2%, to 10,927.97, as giant telco China Mobile gained 10 cents, or 0.5%, to HK$20.25.

Korea's Hyundai Motor, the carmaker, was the main winner in Seoul. With strikes now behind it and sales seen rising, it climbed 550 won, or 1.4%, to 39,250 won. The Korea Composite put on 0.85 of a point, or 0.1%, to 764.96.