Asian markets try to rebuff Indonesia, analysts say
Asian markets try to rebuff Indonesia, analysts say
HONG KONG (Reuters): Asia's financial markets are now battle-
hardened enough to ignore all but the worst news from crisis-hit
Indonesia, analysts said.
As Indonesia's President Soeharto named his new cabinet over
the weekend and foreign politicians flew in for talks on the
crisis, analysts said markets had already discounted bad news
from the country.
"It's all pretty much in the price at this point," said one
currency strategist who declined to be identified. "There is the
potential for a good-news market surprise but I think a bad-news
surprise is unlikely."
The 76-year-old patriarch named his new cabinet on Saturday,
consolidating his grip on power.
But by giving top posts to one of his daughters and to his
buddy timber tycoon Mohammad "Bob" Hasan, Soeharto was likely to
be charged anew with cronyism -- seen as a contributing factor to
Indonesia's economic woes.
While this could hurt Jakarta's markets, analysts said there
was mounting evidence that Indonesia was no longer as relevant to
the rest of Asia. They said the region's share markets were
beginning to look more towards U.S. stocks.
"This is yesterday's news, Indonesia," said fund manager Marc
Faber of Marc Faber Ltd. "The big issue now in Asia is not
Indonesia, it's the Dow. As long as the Dow goes up, the Asian
markets will rebound. If it goes down, it will hit Asia."
The Dow Jones industrial average closed 57.04 points lower on
Friday at 8,602.52.
But Asia's resilience is likely to get an early test as
markets react to weekend developments in Indonesia.
In addition to the cabinet announcement, traders will also be
looking to any comments by Japan's Prime Minister Ryutaro
Hashimoto, who arrived in Jakarta on Saturday to meet with
Soeharto.
Japan is the biggest bilateral contributor to Indonesia's $40
billion-plus bail-out package arranged by the International
Monetary Fund. Relations between Jakarta and the world body have
been strained recently over the government's perceived foot-
dragging on the economic reforms prescribed by the package.
Another key visitor, U.S. Treasury Undersecretary of
International Affairs David Lipton, flew in to Jakarta on
Saturday to discuss the IMF-backed reforms.
Analysts were waiting to see how currencies would react to any
surprise bad news from Indonesia such as the shock implementation
of a currency board system proposed by the government, which
would peg the flagging rupiah to the dollar. Many consider a
currency board unworkable given Indonesia's low level of foreign
reserves and weak banking sector.
Chris Roberts, technical analyst at HSBC James Capel, said a
worsening of Indonesia's situation could test Asian currencies'
new-found poise, but added that the impact of bad news would be
limited.
"Bit by bit, these other currencies are strengthening so there
are obviously some people out there who feel the recovery is
about to get under way," Roberts said.
"But if something does go wrong, we'll see what these gains
are made of. This will be the first test," he said.
Markets were quiet last week. While some analysts put this
down to uncertainty about President Soeharto's currency board
plan, others said Asian volatility had declined substantially and
markets were simply less reactive.
Some joked that exhaustion after months of volatility rather
than improving economic fundamentals explained recent market
stability.