Asian assets stirred, not shaken by Argentina crisis
Asian assets stirred, not shaken by Argentina crisis
Nick Edwards, Reuters, Hong Kong
Asian markets were stirred, but not shaken on Friday by Argentina's deepening crisis, with most bad news priced in and fears of contagion to the region and its pegged currencies calmed by flush financial sector liquidity.
Asian dollar bonds barely registered the shock resignation of Argentine President Fernando de la Rua after days of unrest and popular revolt against economic austerity measures, with the most sensitive Philippine debt bouncing swiftly from a brief dip.
The pegged currencies of Malaysia and Hong Kong faced some pressure as financial markets anticipated a collapse of Argentina's dollar-pegged currency regime.
Stocks were weaker -- by three percent or more in Hong Kong, South Korea and Taiwan -- mainly due to a Wall Street tech rout.
Philippine bonds, a barometer of emerging market risk in Asia, bounced back on Friday after being rocked lower on Thursday by Argentina's deepening $132 billion debt and political crises.
The Hong Kong dollar, the world's second-most talked about pegged currency, came under renewed pressure with one-year forwards rising to 300 pips from 240 late on Thursday.
The rate had been at 175 on Wednesday, before the onset of the worst riots in Argentina's history marked the beginning of the end for the country's government.
Analysts say the Hong Kong dollar is still rock solid, but that doesn't mean it's irrational for traders to be cautious.
"I'm absolutely certain that (Hong Kong's) peg will stay," said Pieter van der Schaft, associate director, economic research, at Barclays Capital in Hong Kong.
There's little in the Argentina crisis that would embolden speculators to go after the region's pegs, analysts say.
"There are some analogies that people might want to draw with the fixed exchange rate regimes in Malaysia and Hong Kong, but fundamentally, if you look at these systems, there is credibility with the governments and the central banks," John Tan, a fixed income analyst at Standard Chartered Bank in Singapore, said.
A host of other factors make Asia less susceptible to emerging market contagion than before -- especially its relatively less reliance on foreign capital flows than its peers.
Argentina, for example, has seen net private capital flows shift to an estimated deficit of $13.3 billion in 2001 from an average annual surplus of $14.7 billion in 1997-99, according to U.S. investment bank, JPMorgan.
Bank deposits of about $1.7 trillion, the highest domestic savings rate in world, huge foreign reserves and strong external trade balances provide considerable insulation to Asia.
So too do foreign debt piles that have shrunk since the region's crippling financial crisis of 1997/98.
Measured against short term debt, international reserves in Thailand, Indonesia and the Philippines cover 260 percent, 194 percent and 146 percent respectively in 2001.
"Official institutions generally feel that a country's reserves should be at least equal to its short term debt. (These economies) amply meet this test," JPMorgan said in a client note.
That's not to say there are no risks facing Asian economies, just that investors don't see them originating from Argentina.
"The weakening of the yen is a bigger risk," Carl Wong, credit analyst at Bank of America in Hong Kong, said.