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.