The Asian Bear Market
afr.com.au Monday, October 23, 2000
Bears are wide awake in Asia
By Tim Dodd, Jakarta
While stock analysts in most of the world still debate if and when the bear market will arrive, in Asian markets there is not much doubt about its reality.
Try this. Since the beginning of this year Tokyo is down 20 per cent; Hong Kong down 11 per cent; Seoul down 47 per cent; Taipei down 36 per cent, Bangkok down 42 per cent; Manila also down 42 per cent and Jakarta down 38 per cent.
Only Kuala Lumpur appears to have escaped the millennium massacre. But that is really only an illusion of timing because the Malaysian stockmarket is down nearly one quarter since its February peak.
The collapse in equity values in the worst hit countries has been accompanied by a similar fall in the value of their currencies. Since the beginning of the year the Thai baht has fallen 14 per cent against the $US; the Philippine peso is down 18 per cent and the Indonesian rupiah down 22 per cent.
The worst hit are the nations that suffered most from the Asian economic crisis (Japan's problems stem from more long-term structural issues), and the scale of the capital withdrawal now being observed raises the question of whether we are seeing the beginning of another similar crisis.
The Asian Development Bank argues that we are not. In its latest Asian Recovery Report, released this week, it comes down on the side of the optimists, saying that the size and composition of capital outflows from those economies worst hit during the 1997-98 crisis - South Korea, Thailand, Malaysia, the Philippines and Indonesia - is very different now.
"In 1997 and 1998 the main problems were non-renewal of short-term loan credit by banks and investor panic. Now the problems are scheduled debt repayment and slowdown or withdrawal of foreign direct investment and portfolio capital," the ADB said in the report.
"The symptoms are the same but the causes are quite different," Mr Yoshihiro Iwasaki, head of the ADB's regional economic monitoring unit, told Dow Jones Newswires after the report's release. The ADB also believes that the Asian economies are better placed to withstand the strain of capital outflow now than they were three years ago.
"The quality of recovery is improving and the affected countries are now in a much stronger position to absorb shocks," the report said.
It pointed out that a number of external factors not related to the inherent strength of Asian economies were also pushing Asian equity prices down, including rising interest rates in the US and volatility in high-technology share prices in the Western economies.
But the ADB, in spite of its relatively sanguine position, does admit the seriousness of the problems in Asian economies. It acknowledges the factors which are now causing analysts to think twice about these countries - including the slow pace of corporate and bank restructuring, lack of progress in economic reforms, deteriorating fiscal positions and the perception of heightened political risk.
The ADB is taking the optimistic line but the reality is that, even if Asia's new economic difficulties fall well short of the dimensions of the 1997-98 crisis, the lost investment is still causing enormous extra hardship across the region. |
