Last May, just one month before the wave of financial distress began to break over Asia, Money magazine ran an investing story with this headline:

"How to Cash In on the Asia Boom; Every Investor Today Ought to Take a Hard, Close Look at the Dazzling Promise of the Pacific Rim. Here Are Four Gateways to Earning Spectacular Profits in the World's Fastest-growing Economies."

Relying on information from highly paid Wall Street analysts, economists and investment strategists, Money praised the "economic miracle taking place today around the Pacific Rim" and declared: "No investor today can afford to ignore the opportunities the Pacific Rim offers."

A month later the Thai baht plummeted, triggering the most frightening regional economic and financial collapse since the 1930s -- a crisis that has destroyed more than $1 trillion in wealth, according to financial analysts.

And what does the author of that Money article have to say, in retrospect? "Everyone is genuinely surprised by the decline. I certainly am." said Michael Sivy, the magazine's chief investment strategist.

Sivy does not lack for company. Many journalists wrote enthusiastically about Asia in the year before the bubble began to burst. Their number included James K. Glassman, investing columnist for The Washington Post, who wrote favorably about Asia and other emerging markets in mid-1996 and again in March and April of last year.

Journalists were not alone is misjudging the robustness of the Asian miracle. A Wall Street Journal roundup of economists in June 1997 reported that more experts picked Asian stock markets, excluding Japan, to be top performers in the following 12 months than chose the United States, Europe and Japan.

"I have never seen such massive self-delusion as in Asia. Not just by the press but also by the financial community, governments, companies and even the International Monetary Fund," said Marc Faber, a veteran Hong Kong-based global investor and analyst who was one of the very few to predict Asia's troubles.

The lesson for investors, according to chagrined analysts and journalists, is that the public ought not to put too much faith in forecasts proffered by Wall Street or the financial media. Predictions about the future are inevitably based on past experience -- which isn't always a reliable guide.

"I would say to the reader, You have to be skeptical about everything,' " Glassman said.

History shows that the experts seldom spot important market turns. Most analysts were bullish on U.S. stocks before the October 1929 crash. In 1989, few analysts predicted that the Tokyo stock market, then at an all-time high, would plunge and stay down for years.

Asian investing, too, was never more popular than in the months leading up to the current crisis.

U.S. mutual fund investments in Asia peaked in August 1997 at $38.5 billion, according to Robert Adler, head of AMG Data Services in Arcata, Calif., which tracks mutual funds. Asian stock mutual funds proliferated throughout last year, according to Adler. As of the end of December, there were a record 185 Asian stock funds.

As they were touting Asian opportunities, most pros completely missed the dangers that were staring investors in the face.

"We do not get a very good grade for spotting Asia's problems, I am afraid to say," said Richard Farrell, a portfolio manager for two Asian stock mutual funds sponsored by Guinness Flight Global Asset Management, a British investment company.

Analysts cite several reasons for the failure, including the fact that so many analysts were linked to the same big financial houses that were part of the bubble economy.

"The bubble was created by an over-extension of credit by foreign lenders and investors to these Asian countries. When you are part of the problem, the chances are you cannot have predicted it," said Rao Chalasani, chief investment strategist at Everen Securities in Chicago.

Another reason for the ill-timed touting of Asia was the permanent bull-market mentality that had developed among analysts after years of ever-rising Asian economies and financial markets.

"This was a region of the world where political institutions worked. People were reasonably well-educated. There was a high savings rate. Strong family values. Belief in the social order. And these were economies in the early stages of development," Sivy explained. "Anybody who covers investing is always going to write positively about the sector that is hot -- even though past performance does not predict future performance. It would be weird not to."

Douglas C. Johnson, a Merrill Lynch & Co. executive quoted in stories by Glassman and Sivy said: "I don't think we were over-hyping Asia. It was being ignored. Asia was on autopilot. The growth was always supposed to be there. So there seemed nothing to worry about."

Too little deep research was done by Wall Street's economic and financial analysts, sources said. Despite their high pay (analysts typically earn hundreds of thousands of dollars a year), they did not cover Asia very well, according to other financial insiders. The lack of good financial intelligence lulled people into a false sense of complacency about the region.

"There was not a lot of good research done to explain why Asia's high growth rates were sustainable," said Todd Bucholtz, a former analyst at the global investment firm Tiger Management who now advises private investment funds. "The analysts are spread pretty thin, covering five to six countries apiece. And they spend a lot of time in Frankfurt, New York or L.A. selling the Asian story to their firms' clients."

Sivy, who wrote his ode to Asia after a long swing through the region, recalled: "In the spring of last year when I was out there, we talked to . . . all of the analysts, and they were talking about a region where even the slower-growing countries were going to achieve 5 percent real growth rates. People talked about the possibility of a bad year being 2 {percent to} 3 percent growth. It did not seem pie-in-the-sky at the time."

Journalists also may have been deceived by the region's seeming economic vitality, according to Dave Kansas, editor in chief of the online financial news service, who has traveled in Asia.

"It was hard not to get caught up in the excitement of the region when you arrived and saw dozens of construction cranes putting up new buildings and cities that were hyperactive," Kansas said. "For a journalist, all that activity is very seductive. You can see the surface and not necessarily dig down to see that beneath the sea of motorbikes is a financial house of cards. It's easy to be snowed."

The failure to sound the alarm on Asia also may have stemmed from Wall Street's eagerness to market Asian investment products -- and thereby make money off the huge Pacific Rim operations many houses have established in recent years.

"Journalists rely on the investment houses, who are not only fallible but also have a stake in promoting these investment ideas," Glassman said. "A lot of {the promotion of investment ideas} is fed by the investment houses with an ax to grind."

Kansas agreed. "Too often, journalists treat Wall Street strategists and analysts as if they just reached them at Yale," he said. "But these sources have investment banking relationships. If they suddenly downgrade Asia, their firms can get yanked on a big deal for some Asian government or company."

Faber contended that some investment banks played down bad news because of their financial stake in Asia.

"I know of three continental European financial institutions who told their analysts to tone down negative assessments of certain countries in the region because the firms were negotiating deals with Asian companies or governments," Faber said. "The analysts, who were beginning to see the cracks appearing in early 1997, were shut up."

Amplifying the Wall Street views were the journalists, eager for the latest hot investing story.

"Mutual fund companies and securities firms have become much more aggressive marketers of investment products, and a more pervasive financial press was out there competing to find the next big investment idea to promote." said Michael MacMillan, head of MacMillan Communications, a New York-based public relations firm that represents investment companies to the financial media.

Glassman agreed. "As far as the press is concerned, we are continually looking for novelty," and the Asian boom was a great story, he said.

The failure to spot Asia's vulnerability also may stem from the investment philosophy of the moment -- the "buy-and-hold" approach, according to Faber.

"The whole investment business is run by people who concluded from the 1987 stock market crash that you should never sell," Faber said. "They have only experienced bull markets and don't know any better. If they knew better, they would have been more concerned."

So far, the only expert known to have lost his job as result of underestimating the risk in Asia is Richard Hazlewood, former manager of Fidelity Investments' Emerging Markets Fund.

Hazlewood, who had loaded his fund with Malaysian and Thai stocks, was replaced in November as manager after his fund reported a 36.7 percent loss for the fiscal year ended Oct. 31., the worst performance among all diversified emerging market funds, according to Morningstar Inc., a Chicago-based research firm that tracks mutual fund performance. Hazlewood has left Fidelity, according to a company spokesman. Staff researcher Richard Drezen contributed to this report. LARGEST STOCK FUNDS BY ASSETS AND RETURNS; EXCLUDING JAPAN Fund



(in billions) T. Rowe Price New Asia -- 39.41

$8.43 Merrill Lynch Dragon B -- 43.84

4.28 Colonial Newport Tiger B -- 39.40

3.90 Colonial Newport Tiger A -- 39.15

3.61 Fidelity Southeast Asia -- 42.53

2.76 Guinness Flight China & Hong Kong

-- 32.86

2.44 Colonial Newport Tiger Z -- 39.11

1.95 Fidelity Hong Kong & China

-- 31.22

1.79 Eaton Vance Greater China Growth B

-- 40.63

1.64 Merrill Lynch Emerging Tigers A

-- 49.31

1.57 *July 1997 through Jan. 5 SOURCE: Morningstar CAPTION: Guinness Flight prominently displayed the 1996 results (for the 12 months ended Sept. 30) for its China & Hong Kong fund in an advertisement in the January 1997 issue of Smart Money magazine. In this January's ad, however, the lower left-hand corner didn't include fund performance. The gain omitted for the 12 months ended Sept. 30, 1997, was an impressive 27.1 percent. But that was just before the financial crisis in Asia. For calendar 1997, the China & Hong Kong fund lost 20.3 percent, and the fund's average annual return since inception dropped to 5.1 percent.