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.