(Agencies)
Updated: 2004-02-06 14:23

The rapid spread of bird flu across Asia may provide regional investors with an excuse to take profits, but is not seen doing the kind of harm to the region's growth and balance sheets wrought by SARS in 2003.

The spread of the H5N1 avian influenza has revived memories of Severe Acute Respiratory Syndrome (SARS), which last year killed nearly 800 people.

But bird flu is unlikely to have the same devastating impact as SARS on regional growth, market watchers say.

"I think the bird flu is a very short term situation at the present time," said Jonathan Lowe, managing director at JP Morgan Asset Management. "Clearly there is a concern that it will be a complete re-run of the SARS experience, but as yet, it doesn't seem to be anywhere near as virulent."

Bird flu fears have hit share markets in Hong Kong and Thailand. Hong Kong's Hang Seng Index has fallen around four percent from a two-and-a-half year high hit on January 27, while Thailand's benchmark index has fallen more than eight percent since the outbreak became widely known there in mid-January.

To date, bird flu has killed 13 people in Vietnam and five in Thailand, and has been found in poultry in at least 10 Asian countries and regions.

Those who have died had close contact with poultry and as yet no cases of human-to-human transmission of the virus have been confirmed. But the fear is that the virus could cross over to become the source of the next influenza pandemic.

"Obviously, if the virulence increases and if human-to-human contact does take place then you can clearly have a re-run of SARS. But the likelihood as it stands at the present time is that it's a containable problem," said Lowe.

ING Financial Markets said in a research report the economic impact of bird flu was likely to be much less profound than that of SARS, because chicken meat production accounted for only 0.4 percent of Asian GDP whereas SARS hit tourism and shopping -- affecting consumer consumption which was around two-thirds of GDP.

"Investors have profits to take given the strong run in equities last year," said ING. "Avian flu is an excuse to take profit, not the cause."

Lavin Mok, the managing director of Oppenheimer Funds, which manages over US$150 billion in assets and this week opened an office in Hong Kong, did not see bird flu discouraging foreign investors.

"We don't think that just because of the bird flu foreign investors like us won't look into the region," said Mok.

If the outbreak did grow into a wider health problem, ING Hong Kong and China analyst Kingston Lee said investors should look to pharmaceuticals to outperform, while airlines and airports were likely to suffer.

"In the SARS period, airlines underperformed by about 25 percent as pharmaceuticals outperformed by about 25 percent relative to the Hang Seng Index," Lee said.

Likely outperformers were Tong Ren Tang Technology, which makes influenza medicines, and China Pharmaceutical, whose Vitamin C products were popular during the SARS outbreak, ING said.

But Lee said ING had a sell rating on Beijing Capital International Airport and China Eastern Airlines. As well as their exposure to any downturn in tourism, ING said China Eastern faced competitive pressures while the valuation on Beijing airport was high compared to its historic trading range.