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To: Ron Wilkinson who wrote (6042)	1/16/1998 12:36:00 AM
From: The Fix	Read Replies (1) \| Respond to of 116762

HMMM...Maybe Gold has a place in relation with Currencies after all. Thursday January 15, 11:49 pm Eastern Time OPINION - Asia currency crisis - By Mark Mobius By Dr J. Mark Mobius, Templeton Asset Management Ltd HONG KONG, Jan 16 - The Asian currency crisis, which started in July in Thailand, has had a dramatic and largely unanticipated effect on the region's equity markets. As of December 5, 1997, the Thailand market was down 88 percent in U.S. dollar terms from its all-time high. Enormous falls from all-time highs have also been seen in Korea (85 percent) and Malaysia (72 percent). Many other countries in the Asia region have seen equity prices fall by more than 50 percent from all-time highs. The number of countries involved and the extent of the market declines indicate that the current crisis dwarfs the Mexico crisis of 1995. In hindsight the origins of the crisis can be traced back to the imprudent exchange rate policies adopted by the governments of the region which encouraged companies to borrow excessive amounts of foreign currency fuelling a region-wide speculative bubble to rival that of Japan almost a decade earlier. When the currencies of the region finally succumbed to the enormous pressure of huge current account deficits and speculative attacks, they fell like rocks. The devaluation of the currencies had a knock-on effect on the equity markets of the region because so many companies and governments had borrowed U.S. dollars heavily, attracted by the low dollar interest rates being offered during the last few years. Their governments had assured them that the exchange rates of their local currencies against the U.S. dollar would not change so they assumed no or little currency risk. The domino effect of falling currencies thus had a disastrous impact on the cost of paying back the U.S. dollar loans putting many companies into bankruptcy and thus affecting the banking systems in those countries. The rush for cash then consumed equity market prices in a wild melee of selling the likes of which has not been seen for many years. The Asian currency crisis spells the end of the system of U.S. dollar pegs for the region's currencies which has been in existence for a long time. What system will replace it is, as yet, unclear. A period of floating exchange rates in the region would prevent a similar asset price bubble occurring again but would also be an impediment to trade. Perhaps a system similar to the European Union's Exchange Rate Mechanism (ERM) could be developed in Asia. I believe that such a system founded on a gold standard could be implemented effectively in Asia. Of course, this would be fraught with difficulties. The fundamentals of the countries in the region are even more disparate than those in Europe where the introduction of a unified currency is now being implemented. However, the alternative of floating exchange rates creates all kinds of problems for domestic exporters and importers in Asia. The good news is that floating rates would force governments in the region to be accountable for their actions to the world markets. This might encourage them to adopt prudent macroeconomic policies and rein in government spending on inefficient projects. The International Monetary Fund has come in for some serious criticism in recent months, both for its handling of the crisis and for the austerity measures it has imposed on the countries that it has bailed out. In the long run, however, the structural changes that are being enacted now in Korea, Indonesia and Thailand will be of immense benefit to these economies and help to prevent such crises occurring again. However, the history of the 20th century has shown that governments cannot resist fixing their currencies in some way and more often than not they pay the price for their inability to learn from their mistakes. We see the Asian currency crisis as an excellent opportunity to purchase stocks at bargain prices and we have been aggressively buying in those countries where equity prices in U.S. dollar terms have fallen the furthest. In several countries we now have the situation where panic selling has driven both equity prices and the currency to ridiculously low levels. Many currencies that were overvalued before the crisis are now significantly undervalued and from a long-term perspective many stocks in the region represent very good bargains. With day-to-day trading in the region still looking pretty scary it takes great fortitude of mind to take the plunge and invest. The best time to buy is when blood is running in the streets, even if it is your own. However, while this is a great long-term strategy there remains the possibility that the crisis of confidence among investors will push equity prices in the region lower and that currencies will continue to depreciate. Investors in these markets must be ready to experience losses for a while before the profits start coming in. //// (The opinions expressed in this column represent those of the author only. They should not be seen as representing the Fixer