Outlook: Market meltdown fails to emerge

Outlook on the proposed solution to the problem of sets, the risk of a global stock market crash, and the contrasting fortunes of BT and C&W

IF EDDIE GEORGE didn't see the Asian crisis coming and still isn't clear why it struck, as he admitted yesterday, the rest of us can forgive ourselves for not having a firm grip on the situation either.

The problem is that without understanding the past it is hard to predict what the future holds for both Asian and other emerging markets. The signs are that the Governor's uncertainty is widely shared in the financial markets, marked as they are by intermittent flurries of contagious panic that stop as mysteriously as they started. One day a generalised panic; the next investors are picking out the soundest markets and snapping up bargains.

Wall Street holds one crucial key to the outlook. The lesson from 1987 is that serious global stockmarket contagion is propagated from US to the rest of the world, and not the other way round.

This is scant comfort to the bears who think Wall Street is now massively overvalued, but - so far - they have been in the minority. Yesterday once again saw investors buying up hi-tech stocks, albeit rather hesitantly, at the first sign of a setback.

Another important point is that emerging markets are not all the same. While South Korea is making rapid strides in its banking and corporate reform, so that the IMF forsees a recovery starting as early as next year, Indonesia remains in an utter mess, and it is likely that Hong Kong still has the worst of its crisis to face, having so far postponed it.

There are still Asia-wide worries. For example, a Chinese devaluation would have serious knock-on effects for all its neighbours. This will keep all of the region's markets under a cloud for some time.

But even so, international investors do distinguish between emerging stockmarkets far more finely than was the case a few years ago. So far, fingers crossed, Asia has not infected Russia and has not crossed over to Latin America.

It would take a brave soul - braver than Mr George, for one - to rule out any risk of a round-the-world stockmarket collapse of the 1987 variety. Yet on this week's evidence, it is still a possibility rather than a probability.