Asian financial markets brace for more falls

Asian financial markets brace for more falls

SINGAPORE (AFP): Asian stocks and currencies are bracing for further falls after plunging last week due to persistent yen strength, fears of delay in key reforms in the region, and trouble in Indonesia.

"They are now at their crossroads and the current environment suggests more downside than upside," said Philip Wee, regional treasury economist at Standard Chartered Bank in Singapore.

He warned that another round of rapid currency declines would moderate economic growth in most Asian nations recovering from the financial crisis which erupted in mid-1997.

The Indonesian rupiah, Thai baht, Philippine peso and Singapore dollar all fell past sensitive levels in what a regional official dubbed a "mini meltdown" of Southeast Asian currencies last week.

Stock markets in the region also dived following continued weakness on Wall Street, where the benchmark Dow Jones Industrials index dipped to a four-month low and below the key support level of 10,500.

Dealers said while Southeast Asian markets were concerned about the rampaging yen and the bearish US stock market, the focus was greater on a problem at their doorstep -- the worsening political and security situation in Indonesia, rocked by massive demonstrations in Jakarta as the East Timor saga continued to unfold.

"If the situation in Indonesia does not improve and the rupiah falls through the 9,500 (level against the dollar) and extend its weakness beyond 10,000, there will be a psychological negative impact on the rest of the currencies," Wee said.

Thio Chin Loo, head of Asian currency research at Banque Paribas, said Asian currencies would continue to trade as a bloc amid "capital flight out of asset markets."

She said speculative interest against Asian units appears to have risen with "the bias for currencies firmly on the downside."

The rupiah ended at 8,745 to the dollar after flirting with the 9,000 level on Friday on news of deaths in Jakarta street battles between student-led demonstrators and security forces.

The peso plunged to a 10-month low of 40.895 to the dollar while the baht nosedived to a new 12-month low of 41.37 to the greenback before recovering at the close of trading at the weekend.

Even the fundamentally strong Singapore dollar, which fell past 1.7100 against the greenback last week, has come under pressure from "catch up" plays, Thio said.

Wee said weakness in regional currencies would erode export competitiveness in Malaysia, where the ringgit had been pegged at 3.80 to the dollar under capital controls set last year to insulate it from external shocks.

"Weaker neighboring currencies can stymie Malaysia's export growth," he said. "The more they weaken, the greater is the pressure on exports."

Sani Hamid, analyst with Standard and Poor's MMS in Singapore, said the yen's surge against the dollar to its highest level in three years had not only put Japan's fragile economic recovery at risk but also threatened Japanese investments in the region and made repayments of yen-denominated loans more expensive.

"The yen strength on the whole has impacted stock markets in the region where there are large Japanese investments," he said.