>The Asia Investigator (CITI)

Better Than Expected ≠ Good

■ Asia ex: The bull menu contains bigger EPS revisions, better economic numbers and plenty of liquidity — Earnings revisions have been worse than even during the Asian crisis but the cuts have been small. Economic numbers have come out worse than expected for the last 18 months but not for the past two months. This has given the market hope that the worst may be behind. However, better than expected does not mean out of the woods. There is plenty of excess liquidity due to the collapse of industrial production.

■ Japan: Signs of an environmental bubble—Shades of IT bubble of decade ago — In some ways we think the current environment bears a certain resemblance to that of 1990-2000, when the IT bubble emerged. The global economic upheaval is larger now than it was then, and the monetary easing and fiscal mobilization in response have been much more dramatic. Still, just as the IT bubble emerged after the LTCM crisis in the US and financial crises in Russia and Asia, we think the current economic crisis might be followed by an environment-related bubble.

■ Singapore: Out of Recession by 4Q09; 12-month STI Target 2400 — 1Q GDP contraction of -11.5% is likely to be the worst. We expect a smaller rate of contraction in 2Q (-8.2%) and 3Q (-6.2%), with good chance of positive GDP growth in 4Q09 (+0.3%) and 1Q10 (+6.7%). We believe the recession will be over by the fourth quarter. Aggressive global fiscal and monetary easing, coupled with Singapore government’s fiscal measures, and the opening of the two integrated resorts by early 2010 will support the recovery.

■ Taiwan: Just One More Squeeze — We expect the market to peak soon, but probably not before another upswing. Local liquidity is strong, short positions and QFII underweights are significant, and sales momentum, for now, remains positive.

■ Thailand: Short-Term Relief; Long-Term Settlement — The issuing of an Emergency Decree for Bangkok on 12 April paved the way for the Army to replace the Police in containing protestors under a firm policy stance by PM Abhisit of non-violence with minimum damage and human casualty.

■ Fun With Flows: Focus Shifted Towards Korea and Taiwan

To see full report: THE ASIA INVESTIGATOR