2000.01.19¡@2:41am Taiwan time updated
United States Seen Facing Symptoms of Asian Financial Crisis
SINGAPORE, Jan 18 (AFP) - The United States is facing the same symptoms that plunged Asia into a financial crisis in mid-1997, with its stock market vulnerable to a crash in the second half of this year, a top Standard Chartered Bank economist warned Tuesday.
Gerard Lyons, the bank's London-based global head of treasury research, told a media briefing here that a US stock market crash would bring down the robust US dollar and could hit Asian central banks that built up greenback-led reserves.
"In fact there are four similarities between America now and some of the Asian economies which got into trouble back in 1997," he said, citing lack of control in bank lending, asset price inflation, huge trade imbalance and dependence on foreigners to finance that deficit.
Lyons said unlike in Asia, when international investors bailed out when they first sensed signs of trouble, foreigners had delayed taking out their capital from the United States because of lacklustre growth in Japan and Europe.
He said the crunch would come when the market suddenly realised that corporate profits expectations needed to be revised downwards on the back of a a series of interest rate hikes by the US Federal Reserve Board.
Private investors, meanwhile, would persist in buying stocks because they believed corporate profits would keep going up, he said.
"The test will come when the Fed has to keep hiking rates," he said.
"Could the US market come off more abruptly? Yes, because it has come up so abruptly. And, therefore, the dollar could be hit hard in the second half of this year," Lyons said.
"Historical valuations suggest that the US stock market was overvalued a year ago, and now more overvalued. I think we are already in the bear market for bonds," he said.
Lyons predicted that the Federal Reserve would push its key base rate from 5.50 to 6.75 percent between now and the end of 2000.
The US stock market plunged in the first week of 2000, sending panic across the globe, but pulled back to become even stronger despite Federal Reserve Board chief Alan Greenspan's warning that soaring equity values could provoke economic overheating.
On the repercussions for Asia if the US market collapsed, Lyons said Asian stocks markets which were strong in the first half of 2000 could be vulnerable.
He forecast that the US situation would further encourage Asian central banks to keep interest rates low.
"There will be no need to prematurely tighten policy aggressively if there is a sharp sell off in the US economy," he said.
But Asian central banks which had built up US dollar-based reserves could be hit because "the dollar will be a casualty if the US market comes off.
They needed to diversify their currency holdings, he warned.
Based on anticipated problems in the US financial markets, Lyons said the Singapore dollar was expected to soar in the second half because of its status as a safe haven currency in Asia during crisis.
He expected the Singapore dollar to hit the 1.5000 level by the end of 2000 from 1.6750 at present.
Lyons also expected the Malaysian authorities to maintain capital controls which had helped the economy rapidly recover from crisis.
But he said Kuala Lumpur would repeg the ringgit at 3.50 to the US dollar from the present level of 3.80.
"If I was advising the Malaysian authorties I will say: 'For now, keep things as they are. The economy looks in good shape and there is tremendous volatity out there in the global economy'," he said, again citing the US stock meltdown as a key threat.
Apart from the Singapore dollar, Lyons said the South Korean won, Taiwan dollar and the Thai baht should remain "strong" in 2000.
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