More bad news in store for Asian markets<\/p>\n
By P. Parameswaran<\/p>\n
SINGAPORE (AFP): Asian financial markets will remain depressed
\nas they undergo a correction after their second phase of recovery
\nfrom the regional turmoil with analysts unsure when the downward
\nadjustment will end.<\/p>\n
\"In assessing the fundamental issues confronting Asian
\neconomies -- both external and internal -- there is more downside
\nto go,\" said Fong Cheng Hong, senior vice-president for research
\nat Nomura Singapore Ltd.<\/p>\n
She said the current market adjustment appeared steep and if,
\nat the same time, Wall Street suffered a 20-to-30 percent
\ncorrection, as some analysts predict, Asian stocks could plunge
\nto levels unseen since financial turmoil broke out in the region
\nin mid-1997.<\/p>\n
Asian currencies are also expected to shrink in line with a
\ndeclining yen, according to forecasts by Barclays Bank and ANZ
\nInvestment Bank.<\/p>\n
Stock markets across the region fell by up to 20 percent since
\nFeb. 10 from their peaks of the second mini rally which started
\nin September 1998, according to a Nomura study.<\/p>\n
The first mini rally, which was very brief, began in January
\nlast year, six months after currencies in Asia plunged and caused
\nstock and other asset prices to crash and pulled the brakes on
\nthe region's rapid economic growth.<\/p>\n
Fong said among the external worries that would keep asset
\nprices down were financial chaos in Latin America and Brazil in
\nparticular, the unsettled Russian problems, a slowdown in world
\ngrowth and further deterioration of Japan's economy.<\/p>\n
She said easing of debt overhang in the Asian banking and
\ncorporate sectors was proving much more difficult and severe than
\nexpected.<\/p>\n
There was limited room for Asian interest rates to ease in the
\ncoming weeks while exports, initially thought to be Asia's
\nsavior, were still mostly on downtrend with the exception of
\nSouth Korea and Malaysia, Fong said.<\/p>\n
ANZ Investment Bank said in a bulletin to clients that Japan's
\ncentral bank, the Bank of Japan (BoJ), would ultimately adopt a
\nmonetary stance that would weaken the yen and exert pressure on
\nother Asian currencies.<\/p>\n
\"We are of the opinion that BoJ will ultimately bow to
\npressure and start underwriting new issuance of Japanese
\ngovernment bonds (JGBs),\" it said.<\/p>\n
The ultimate impact of such a monetary expansion in Japan must
\nbe to depreciate the yen, most probably back to the 140-150 range
\nagainst the U.S. dollar by the latest second quarter of this
\nyear, ANZ Bank said.<\/p>\n
\"The impact of such a probable yen move, coupled with no
\nfurther rate cuts from the Fed (U.S. Federal Reserve Board), must
\nbe pretty negative for Asian currencies,\" it warned.<\/p>\n
Most of the offshore players surveyed by ANZ Bank in the past
\nweek have indicated that they expect Asian currencies to lose
\nbetween 5 percent and 8 percent in value against the dollar in
\nline with the yen dip.<\/p>\n
U.S. investment house Lehman Brothers forecast the yen could
\nhit 132 by June.<\/p>\n
Barclays Capital, a unit of Barclays Bank, warned that the
\nrisk of renewed regional exchange rates weakness was growing.<\/p>\n
\"Although levels seen in January last year do not look likely,
\nforces are building to push currencies back to levels seen before
\nthe rally at the end of 1998,\" said Kate O'Donoghue, analyst with
\nBarclays Capital in Singapore.<\/p>\n
Most Asian currencies fell to record lows in January 1998.<\/p>\n
Donoghue said while Asia's asset market rally late last year
\nattracted overseas funds and supported the regional balance of
\npayments, there could be a portfolio outflow if growth
\ndisappointed and the recent rally faltered.<\/p>\n
\"This will mark a reversal of recent currency stability,\" she
\nsaid.<\/p>",
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