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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: B Tate who wrote (2937)	4/6/1998 8:41:00 PM
From: Stitch	Respond to of 9980

Bernie; <<PS SDarby is getting closer in on my radar screen.>> I agree :) best, Stitch

To: B Tate who wrote (2937)	4/7/1998 10:52:00 AM
From: Worswick	Respond to of 9980

Bernie. Sime Darby...@$.45 US. A buy. Remember my prediction! The previous low was $.73 US... down from what? $4 and change. Bear market lows are 85-93% of the highs. I love your story of the reporter. A righteous ending. Betweentimes a snippet from New Zealand with some idea of "comprable values". For Private Use Only (C) From the land of paper houses... It's A Waiting Game As Japan's Crisis Deepens Saturday, 4 April 1998, 3:43 pm Staff Reporter: Alastair Thompson The biggest source of economic risk to New Zealand has now clearly shifted to Japan. For several weeks the beginning of April has been looming large as the time when the moment of reckoning for Japan was likely to emerge. Towards the end of March the signals were coming loud and clear. First up a Japanese Government NZD$178 billion package of bank assistance measures failed to dispel the gloom. Japanese Banks jumped at the opportunity for government assistance, and NZ$20 billion of the assistance package was taken up in the first round. Commenting on the bank-bailout in Parliament the Japanese Finance Minister said he "could not rule out further bank collapses". A comment such as this coming from a Government minister could be read in most circumstances as saying further bank collapses are in fact expected - otherwise he would presumably duck the question. For such a statement to be made on the day of the bailout is a clear indication of the seriousness of the situation. Next up came the announcement of a NZD$220 billion fiscal stimulus package intended to spark the Japanese economy back into life. This merely caused further market disillusionment. The package disappointed because of its absence of tax cuts, and of any measures which would spark consumer demand. The US president was quick to add his two cents worth and the Japanese government is now officially reconsidering its options. So far the reality of April is living up to expectations. April 1 is the beginning of the fiscal year in Japan and for a number of reasons was always going to bring the crunch, especially for the banking sector. In the past week two more Japanese financial institutions have gone under. One a $6 billion medium sized brokerage firm the other a much smaller insurer. On Friday the Moody's downgrade from "stable" to "negative credit watch" (the same change that was made to New Zealand's ratings two months ago) saw the yen fall to its lowest levels in six years, 135 yen to the US Dollar. Consider This: In Japan the interest rate is presently around 0.5%. This means an increase in the interest rate by just 0.25% to 0.75% has the equivalent financial impact of a rise in New Zealand of 5% to 15%. Meanwhile the comments from Sony Corporation's chief likening the Japanese PM to President Hoover in 1929 can only be regarded as deeply disturbing. Sony is among the few Japanese giants that have so far survived the regional economic crisis relatively unscathed. The corporation is now anticipating a very bad year. This is hardly surprising when the fundamentals of the Japanese difficulties are examined. Essentially the problem is one of bad debt. Japanese Banks have piles of it, and their piles are growing fast. Consider This: In a $100,000 loan at interbank rates can be financed for an interest cost of $500 a year. On the flip side Japanese investors receive the same returns! Officially, in late March there was $257 billion (NZD) of bad debt reported to central banking authorities in Japan. $257 billion isn't a lot in context of the Japanese economy - even if it is two and a half times New Zealand's GDP. However the problem is that in reality the officially reported debt is just the tip of the iceberg. This is because the bad debt reporting system has some deficiencies. One of the reasons April 1 was such a watershed for the Japanese economy is that it brought the introduction of a new reporting regime for Japanese banks. In the past non-performing debt only needed to be reported if interest hadn't been paid for six months. In effect this means that the $257 billion figure relates to bad debt as at around October last year. This was when the problems were just beginning in South Korea and well before the seriousness of the Asian Economic Crisis emerged in January. Consider This: In Japan a bank can invest $1 million in the New Zealand wholesale interest market and earn 9%, or $90,000 a year. In Japan it need pay its depositors only 0.5% or $5000 interest. In effect investments in New Zealand can be used to pay the interest on investments in Japan which are 18 times as large. Talking about the difficulties in late March an official from Japan's Sumitomo Bank predicted the new reporting requirements would increase the amount of bad debt reported by between 30 to 40%. From a $257 billion baseline this takes reported bad debt to around $334 billion. However according to commentators even this may be just the tip of the problem. One commonly used estimate of the amount of "risky or doubtful" debt in the Japanese economy places it around 77 trillion yen. This is roughly $1 trillion dollars, or ten times New Zealand's GDP. This sum far exceeds the total amount of debt thought to be outstanding in Asia by a factor of three, and as a consequence the truth appears to be that Japan's problems are largely domestic. A consequence of this is that any attempts by the West to support flagging Asian economies - such as those announced by the EU today - will not address the source of the economic malaise sweeping the world - namely Japan. From this it appears that the depth of economic recession sweeping the Western Pacific will be dictated from Tokyo. Odds are both domestic and diplomatic pressure on Prime Minister Hashimoto's government to institute the tax cuts will reach crescendo levels shortly. In the meantime the story for New Zealand remains the same. The waiting game continues. c NewsRoom