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It does not feel like a happy new year so far. Last week, markets developed distinctly iffy tendencies. After a strong end to the last year, even London succumbed to selling pressure from the US and still more turmoil in the Far East.

It is South-east Asian markets that continue to provide the major source of concern to investors. Not only is there no sign yet that the problems are receding but it is hard to fathom whether or not leaders of those countries caught in the spotlight of economic reality are yet subscribing to conventional theories. If they do not, then expect more trouble. Expect more trouble anyway. The problems on the other side of the world could rumble on for a good while yet.

Just at present, it is all happening rather too quickly. Triggered by the collapse of the investment bank Peregrine, Hong Kong built on the falls that have continued since the beginning of the year. At the start of the week, the Hang Seng index had already lost 25 per cent of its value in what is still a very young 1998. Heaven knows where the market will be when you read this. I have seen plenty of forecasters talking it down to below 5,000. London&#39s love affair with the Far East seems to be over.

I saw an interesting cartoon depicting the developed Western economies as a ship sailing Titanic-like towards the iceberg of the Far East. Is this a good analogy? Well, it all depends on the eventual outcome but it does seem that financial markets here and in the US are according the Asian crisis insufficient respect.

It is the social and political consequences of these developments that may have the greatest impact. President Suharto may have cancelled 15 major infrastructure projects in Indonesia but it remains to be seen if he is prepared to implement the financial reforms demanded by the IMF. Already, unemployment looks set to become a serious problem. It is worth remembering that it was a loan to an Indonesian company that finally sank Peregrine. More pain and anguish are inevitable.

The picture in Korea looks no better. There, the local population has more to lose. There is also the greater degree of interdependence with the Japanese banking system. The situation is hardly made any easier by the parlous state of North Korea. Third World is an inadequate description for the problems that beset this remaining bastion of communism. Crop failures, mismanagement and a steady disintegration of the economic infrastructure make the problems of the South pale into insignificance. The more traditional plagues of famine and disease could ravage North Korea.

My advice is to continue to avoid this region of the world. What is more, gauging what other markets are likely to do this year is difficult as a consequence. If you believe in the weight of money theory, there is no reason to be overalarmed. Merrill Lynch did not buy Mercury for nothing. It considers that the transference of responsibility from the state to the individual will ensure a steady flow of demand for investment products, and most of these will be equity-based.

The US experience is worth reflecting upon. As is so often the case when it comes to financial markets, the US was ahead of the game in promoting personal responsibility for retirement planning. Individual retirement accounts were not introduced until 1980, at which time just $130bn was invested in mutual funds. By the end of last year, this had multiplied to around $4.5trn. In the last four years alone, the amount of money invested in mutual funds of behalf of IRAs has trebled.

In Europe, the bulk of savings remain committed to banks and other deposit-taking institutions. If we follow the US path, you can expect to see a massive growth in demand for equity products. We will need it if we are not to be unseated by deflationary pressures or general alarm over what is happening on the other side of the world.

At least we can take comfort from the fact that no one appears to have predicted the Asian problems. Indeed, forecasters come in for a bit of a bashing this year. According to that most experienced of broadcasters, Alistair Cook, financial experts on a US TV channel devoted exclusively to markets have no more than a 50 per cent chance of being right. The trouble is, we do not know in advance which half of the forecasts to believe.

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