Asian markets can expect respite from volatility

Asian markets can expect respite from volatility

SINGAPORE (AFP): Asian financial markets can expect a respite from volatility with the Lunar New Year and Moslem holidays ahead, but unrest in Indonesia looms as a threat to stability.

With major Asian markets such as Hong Kong and Singapore closed for three days from Wednesday, analysts expect thin trading as investors keep a wary eye on political developments and potential social unrest in Indonesia.

"We could see quiet trade, with people squaring positions. No one would want to hold long positions with all the uncertainty," said Eddie Lee, regional economist with Vickers Ballas Investment Research.

Asian markets open over the long holiday would take cues from Indonesia, as well as the performance of Wall Street as it reacts to U.S. corporate earnings' results, he added.

The Dow Jones has also been hit by negative sentiment towards U.S. exposure to Asia.

Any positive pump-priming in Japan to restart is stagnant economy, and a decisive plan to restructure South Korea's markets, could also boost the market, Lee added.

The downturn in most Asian stock markets and the continued weakening of Southeast Asian currencies against the dollar last week were largely blamed on pessimism over Indonesia's political succession issue and growing economic woes led by worries about the fate of 65 billion-dollar worth of debt held by Indonesian corporates to private banks.

However, ANZ Investment Bank felt that possible default in debt payments would "no longer" be an issue driving Asian markets this week.

"This is so because we believe that there are increasing corporations who are in talks with their respective creditors in trying to rollover their loans," it said in a weekend report.

As confidence in Indonesia deteriorated, it was being deprived of U.S. dollars and onshore Indonesian banks rushed to supply rupiah to their creditors, who then used the embattled currency to buy what U.S. dollars they could to settle debts.

This was one of the factors that drove the rupiah to a record low of 16,500 against the greenback last week, as the central Bank Indonesia (BI) intervened both onshore and offshore to support the rupiah.

The government has made efforts to provide basic goods at affordable prices in Indonesia as the Moslem-dominated population readies to celebrate the end of the holy month of fasting. But there are fears prices will skyrocket and mass layoffs will be announced after the holiday, triggering protests around Indonesia.

The Indonesian government has forecast an inflation rate of 20 percent for 1998, but many analysts estimate inflation at above 30 percent.

"A lot of people, when they return from holidays, might find out they have no jobs and that could cause social unrest," said Neil Saker, senior economist of SocGen-Crosby Securities in Singapore.

Jakarta has yet to demonstrate to investors a willingness to break the strong links between politics and business, which have been undermining reforms demanded by the International Monetary Fund.

"It would appear the obstacle is political. You can recommend reforms but investors don't seem to trust the people in government," said a regional analyst with a foreign brokerage firm here.