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.