Financial markets keep analysts anxious<\/p>\n
By Richard Hubbard<\/p>\n
SINGAPORE (Reuter): The crisis in Southeast Asian financial
\nmarkets eased last Friday after a dramatic U-turn in economic
\npolicy by Malaysia, but analysts warned that problems remain in
\nthe underlying economies of the region.<\/p>\n
Stock markets across Southeast Asia were generally firmer last
\nFriday with most regional currencies up against the U.S. dollar.
\nAt last Friday's midday break, Kuala Lumpur's composite index of
\nthe top 100 stocks was up 79.90 points to 811.02. And at 0642
\nGMT, the ringgit was at 2.9500 to the dollar, up from an all-time
\nlow last Thursday of 3.0520 per dollar.<\/p>\n
The Jakarta composite index was also up by noon last Friday,
\nrising 44.40 points, or 8.32 percent, to 578.27. At 0632 GMT, the
\nIndonesian rupiah was at 2,970.00, well above its last Thursday
\nlevels of 3,035.00 to the dollar.<\/p>\n
\"The feeding frenzy might have died down but attention will
\nsoon swing back to fundamentals, where there are still some
\nproblems,\" said Song Seng Wun, regional economist at ABN AMRO
\nHoare Govett Securities.<\/p>\n
The recovery in the markets is directly linked to the decision
\nby Malaysian Prime Minister Mahathir Mohamad last Thursday night
\nto scrap restrictions on stock trading introduced a week earlier;
\nto delay indefinitely some major infrastructure projects
\nincluding the controversial Bakun Dam; and to crackdown on the
\nimports of luxury consumer goods.<\/p>\n
The Malaysian measures echoed a similar package introduced by
\nIndonesia earlier in the week, which included a scrapping of the
\nlimits on some foreign share purchases, a rise in luxury goods
\ntax and cuts in some import tariffs.<\/p>\n
Both countries made their moves in the wake of an IMF-
\nsponsored package of economic reforms adopted by Thailand last
\nmonth as part of a $17 billion bail-out deal.<\/p>\n
All three countries, along with the Philippines, had been
\nsubject to heavy speculative selling in their stocks and
\ncurrencies as investors lost confidence in the economic policies
\npursued by each government.<\/p>\n
\"The markets had been worried by the optimism of these
\ngovernments in the face of the export slump which hit the
\nregion,\" said Yirou Zhong, assistant Asian currency strategist at
\nNatWest Markets.<\/p>\n
According to Zhong, the markets will be encouraged by the fact
\nthat these countries have now accepted that they do have problems
\nin their economies.<\/p>\n
\"They have now done a lot in terms of redressing domestic
\nimbalances, cooling their economies and addressing some of their
\nlonger term problems,\" Zhong said.<\/p>\n
But analysts point out that many investors were hurt by the
\nsharp fall in the markets and the often wild policy swings by the
\nregion's governments, and say any recovery will be gradual.<\/p>\n
\"Fund managers won't come back in a big way straight away. It
\nwill be more of trickle,\" said Chiang Yao Chye, Head of Asia
\nPacific Research at CIBC.<\/p>\n
Economists are also cautious about the economic outlook. ABN
\nAMRO's Song Seng Wun points to three concurrent factors which
\ncloud the future for the region.<\/p>\n
The first is the impact of the weather phenomenon called El
\nNino which is causing problems in the agricultural sectors within
\neach Southeast Asian country and could hit food prices.<\/p>\n
Second is the impact of higher interest rates introduced
\nduring the current crisis, which will put pressure on already
\nfragile property markets and the banks that have lent to them.
\nAnd third is the implications of region-wide deceleration in
\ngrowth now on the cards for the next two years at least.<\/p>\n
For Song the weak link in Southeast Asia's attempts to recover
\nstability is the Philippines where banks have a heavy exposure to
\nan overheated property market.<\/p>\n
\"Thailand started the rout, Malaysia sustained it. It could
\nnow be back to the Philippines,\" Song said.<\/p>",
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