Speaking from a contrarian's point of view, Biggs emphasised that keen investors should buy the markets that are down ­ not the markets that are up.

''By nature of that approach, we have to be interested in the Thai market and Asia, which, except for Hong Kong and Indonesia, has been out of style for the past three years," he said.

Biggs, who is also chairman of Morgan Stanley Asset Management Inc, was speaking yesterday at a seminar organised by Securities One Plc, a leading brokerage firm, for its clients and the local financial community. Morgan Stanley has established its presence in Thailand through a technical agreement with S-One.

Biggs admitted he and other fund managers were struck by the overwhelming bearishness of the Thai market, yet that may be a good sign for a contrarian investor, who does not have to wait for all the bad news to come out. ''The news may be just less good because the market is already discounted," he added.

The Thai stock market shed about 35 per cent of its value in 1996, making it one of the world's worst performers. It is still drifting on fears of growing macro-economic instability, high interest rates, the threat of collapsing property firms, the poor asset quality of financial institutions and the uncertain corporate earnings outlook.

In terms of its global asset allocation, Morgan Stanley favours a heavy cash holding at this point as it becomes more cautious about US equities and bonds. The US equity market rallied on a bullish drive to break new ground and gain 21.5 per cent last year.

However, Morgan Stanley's interim forecast return on US equities is particularly bearish for a year from now, putting the return of US large capitalised growth stocks at minus 6 per cent, against a gain of 10 per cent for emerging market equities.

However, Morgan Stanley favours fixed income, coming up with an interim forecast return for US bonds of 11 per cent, international bonds (hedged Deutsche Mark bloc) at 8 per cent, US high yield bonds at 10 per cent, and emerging markets fixed-income at 12 per cent.

In its global asset management strategy, it is recommending a relocation of 31 per cent in US equities, 13 per cent in international (hedged) and 12 per cent in emerging markets, for a total of 56 per cent in equities. It is also recommending a relocation of 16 per cent in US bonds, 6 per cent in international bonds, 2 per cent in US high-yield bonds and 5 per cent in emerging markets, for a total of 29 per cent in fixed income.

Biggs cautioned that money flowing into US mutual funds, which reached US$3 billion (Bt76.5 billion) a week at its peak last year, has started to slow down, and anything can happen to open-ended mutual funds, which provide most of the liquidity for the US market.

He said Morgan Stanley has begun to shift from US technology growth and assets growth funds into international funds.

If this pattern of investment is pursued by other major global asset fund players, Asian markets and other emerging markets will benefit from a bull run, which, however, would not be a repeat of the 1992-1993 drive.

Biggs indicated that Asian markets could rise by 50 per cent in the event of a shift in global funds from the US market. He said a 10 to 20 per cent drop of the US market is not likely to affect emerging markets, including the Thai stock market.