The results of the latest quarterly ING Investor Sentiment Index show that the confidence level among Asian investors dropped in the fourth quarter of 2007 due mainly to subprime concerns and political and government policy changes in some markets.

However, the overall sentiment going into 2008 remained robust with investors in India, Hong Kong, and the Philippines among the most optimistic, while those in Japan, Australia, New Zealand and Taiwan were the most subdued. The previous quarterÆs enthusiasm by Chinese investors had waned.

ôAlthough the ING Investor Sentiment Index reveals that the subprime-led credit crunch and political uncertainties have made investors more cautious, core sentiment remained positive in the region as 2007 came to a close,ö says Eddy Belmans, regional general manager for North Asia at ING Investment Management Asia-Pacific.

The ING index is based on the analysis of a quarterly survey commissioned by ING and carried out by research firm TNS. First launched in October 2007, the tracking study surveys changes in investment sentiment and behaviour across 13 Asian markets, namely Australia, China, Hong Kong, India, Japan, Indonesia, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan and Thailand.

This latest survey û which was conducted in late November 2007 among 1,311 mass affluent investors in the region û does not capture more recent events that have seen markets drop sharply on growing concern about the global economy.

ôWe would expect that the sentiment of all the countries have deteriorated since the survey,ö says Nick Toovey, regional head of equities at ING Investment Management. He notes that Japan, Taiwan and Malaysia are the countries that have likely experienced a higher fall in sentiment since late-November.

In India, Indonesia, Philippines, Thailand, Australia and New Zealand, the sentiment has likely remained more resilient, he says, in line with those economiesÆ stronger domestic consumption and less reliance on US exports.

ôThe expectation in December was that 2008 would be better than 2007,ö says Toovey. ôI would not be so confident if that survey were conducted today.ö

Concerns over whether the US economy is going to slip into recession is foremost on investorsÆ minds worldwide, Toovey notes, adding it is becoming a real possibility. ôWeÆre not saying itÆs a certainty, but itÆs a probability.ö

ôAs we enter what could be a challenging year ahead with further volatility in the stockmarkets and growing concern over a global economic downturn, we believe that Asia will remain the most resilient. It will be interesting to see the effects of recent market changes on investor sentiment in the next wave of the study,ö says Mike Ferrer, regional general manager for South Asia at ING Investment Management.

Toovey says investors should stick with a long-term view and not be tempted to enter the market simply because share prices have fallen. He notes that despite the strong gains in Asian stockmarkets on Wednesday, following the 75bp cut in the key federal funds target rate of the US Federal Reserve, ôweÆre not out of the woods yetö.

Meanwhile, the survey shows that Hong Kong investors believed towards the end of last year that Hong Kong was relatively immune to the dips in the Asian markets. Eighty-three percent of the respondents said they have seen an improvement in the local economy and 71% of them said the same for their own financial situation in the past three months, topping the rankings of all markets surveyed in Asia.

ôThe survey findings are in line with our belief that Hong Kong will continue to be a major beneficiary of China's strong economic growth and the 2008 Beijing Olympic Games,ö says Ferrer. ôOn a micro level, wage increases, tax cuts, rising asset prices and strong tourism will further boost domestic consumption. The weak US dollar and negative interest rate also provide support to asset prices.ö

The survey findings indicate that the subprime-led credit crunch has, in varying degrees, affected investment decision-making in all the surveyed countries over the past three months and the effect will continue in the next three months. When asked about their views on the outlook for the US market, the number of respondents who expected the economic situation to deteriorate in the next three months far outweighed those who expected the US economy to improve.

Against a backdrop of economic uncertainty, an increasing number of investors shifted away from riskier investments such as stocks to the traditionally safe haven options of gold, real estate investment trusts (Reits) and mutual funds.

Despite optimism expressed by many Asian investors with respect to the near-term outlook for the domestic economy when the previous survey was conducted in August 2007, fewer respondents surveyed in November believed that their home economy improved over the same three-month period.