As assessment of the Indian Ocean tsunami continues, fund analysts beginning to measure financial risk in the region said equity and fixed-income markets remained stable. Despite the colossal human tragedy and destruction of 20,000 miles of coastline, they did not expect economies in the region or mutual funds with investments there to be tremendously impacted.

In fact, of 43 funds invested in Asian Pacific countries outside Japan, only 12 have exposure to countries in the region, according to data provider Lipper of New York. Of these, the lion's share is in financial service firms headquartered inland, where investments are expected to remain despite the billions of dollars of reconstruction in the years ahead and its impact on building, construction and real estate.

Commenting early last week on the financial aspect of the tragedy, industry experts said markets in the region did not move significantly. Currencies and bonds were also stable in the affected countries.

"It's obviously an enormously large human tragedy, but it is still unfolding," said Bill Rocco, a senior analyst with Chicago-based Morningstar. "There is an amount of uncertainty," he added.

As of Jan. 6, relief officials reported more than 150,000 people dead with many more still missing. Although the record $3 billion in international aid is arriving in the region daily, concern lingers for survivors in remote areas who went without food, water or medical care for more than a week. The threat of disease from unsafe drinking water remains, particularly in Sri Lanka where monsoons socked the northern and eastern portions of the country.

Ray Mills, portfolio manager of the $600 million T. Rowe Price Investment Growth and Income Fund, is skeptical whether the tsunami will be a drag on the few funds in the region. Early estimates that Thailand, for example, might lose 1% of its GDP this year because of the storm "might be a bit high," he said.

The tourism industry, which was on track to set new records in some regions, is expected to suffer the greatest impact in the near term. Hotels that were full prior to the storm are now at less than 50% occupancy. Given the resiliency of the industry, however, experts agree with Mills and project that tourism in places like coastal Thailand and Sri Lanka will decrease this year by just 1% and 2%, respectively.

Fishing and agriculture were also heavily impacted. But, comparatively speaking, those industries account for a fraction of the region's overall economy. In Indonesia, for example, agriculture accounted for 16% of the country's $208.3 billion in gross domestic product in 2003, according to the latest data available from the World Bank Group. By contrast, major industry accounts for more than 43% of the country's GDP. Agriculture accounts for less than 10% of Thailand's $143.2 billion in GDP, while major industries comprise 34.2%, mostly centered in the inland city of Java. The lucrative high-tech sector in India, a country that lost 11,000 lives to the sea, was also unscathed, and most ports were operational within 24 hours, various news reports confirmed.

Overall, officials from South Asia's Standard Chartered Bank said last week that economic growth in the region will likely be impacted by no more than "a few points."

The staggering loss of life notwithstanding, that relatively minor economic hiccup is due largely to the fact that, excluding tourism and agriculture, major industries in the region, such as Indonesia's important oil and natural gas production, are located further inland, observed Andrew Clark, a senior analyst with Lipper.

Clark also noted that U.S. mutual funds have "a very tiny exposure" in the affected countries, as most investments in the region are further north in countries like Taiwan, Hong Kong and South Korea. In fact, of the 12 funds that have holdings in the region, only two specialize in India and two in Thailand. The other eight funds' South Asia investments average only 9% of their portfolios.

Not surprisingly, however, economists are predicting a surge in construction and the production of raw materials. "Certain commodities are going to be in demand. Prices may go up and construction [activity] may go up, but it might be hard for a U.S. or European investment firm to get a handle on," Clark said.

But Clark didn't entirely rule out an equity play by asset managers and said that a full appraisal of the region probably wouldn't be available until Wall Street's senior managers fully returned to their daily routines this week.

Still, the region's estimated $2 billion to $3 billion in reconstruction, "in the grand scheme of things isn't that large," according to Mills, whose fund has 12% of its assets in Asia ex-Japan, according to Morningstar research.

Mills, however, said risk still exists. A massive disease outbreak or a major bungling of the recovery efforts by authorities could complicate the situation. "But that doesn't look likely at this point," he said.

Morningstar's Rocco said the tragedy reiterates two tenets of investing in emerging markets. First, investors and asset managers alike should be prepared for big hiccups and, second, investment in emerging markets should be diversified across regions and with the rare exception, never in one country alone.

"People who are interested in these emerging [markets] shouldn't overreact to short-term events. Your [investment] timeline should be very long, in the many years, not 12 months," he said. "And as far as the U.S. investor, the concern right now should be on the human loss and not the investment."

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