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.