Asian tigers fade, U.S. investors wise up
Asian tigers fade, U.S. investors wise up
By Nailene Chou Wiest
NEW YORK (Reuter): U.S. investors have woken up to new
realities in Southeast Asia, where currencies swing, stock
markets slump, recession threatens and economic nationalism may
be rearing its head.
The unraveling of the Asian economic miracle has taken some
weeks to sink in, during which even the most upbeat U.S. experts
turned pessimistic.
In the two months after the Thai baht's effective devaluation
on July 2, the currencies of Thailand, Indonesia, Malaysia and
the Philippines lost their respective value by some 13 percent to
28 percent, triggering massive selloffs in the stock markets.
Flying sparks threatened to ignite a regional conflagration
engulfing Singapore, Hong Kong, Taiwan and Korea.
With economic growth in the whole region at risk, more
defaults and downgrades in corporate earnings were expected to
hit the markets further, said Geoffrey Dennis, emerging markets
analyst at HSBC James Capel.
"We may be in the second or the third stage of the crisis, but
we haven't seen all the economic fallout," he said.
Differences in economic fundamentals notwithstanding, the
bears were on a full-scale rampage.
"All of Asia is tarred by the same brush," Dennis added.
Thomas Trebat, head of emerging market research at Citicorp
Securities, who had warned of shock waves from Thailand, blamed
the "hubris" of the Asia watchers in the market.
"Analysts were reluctant to believe that the growth rate (of
tiger economies) would fall from 8.0 or 9.0 percent to 4.0 to 5.0
percent," he said, "And to 3.0 percent or less was just
incredible."
Trebat blasted some investment advisors for their "poorly
grounded judgment and cliches."
The favorite argument of those peddling Asian assets was that
the Asians provided "textbook" examples of strong economic
growth underpinned by high savings rates, and they relished
pointing to the world's tallest skyscrapers and booming stock
markets in the region.
Even when the storm was on the horizon, Thailand managed to
sell its first Yankee bond at a solid price to unwary investors,
he said.
The $600 million 10-year Yankee offering was priced on April
10 at 90 basis points (bps) over U.S. Treasuries. The spread
widened steadily to 165 to 170 bps recently.
U.S. investors held their breath when the Thai government
disclosed on Aug. 22 that its forward commitment in the next 12
months totaled $23.4 billion, while its reserves in mid-August
stood at $27.9 billion.
Suddenly the $17 billion rescue package spearheaded by the
International Monetary Fund (IMF) looked woefully inadequate.
U.S. experts noted there was a limit to the transparency promoted
by the IMF after the Mexican peso crisis. Unlike some macro-
economic data, forward commitment could not, and some say should
not, be revealed on a timely basis.
Allen Shiau, chief international economist at econometric
consulting firm WEFA Group, said data probably should be made
available within a year, but disclosing them right away would be
counterproductive for a central bank to manage its monetary
policy.
Dennis at HSBC pointed out that such disclosure was not even
made by Group of Seven (G-7) industrialized countries.
During the 1992 crisis of the European Exchange Rate
Mechanism, Britain gave in to speculative attack because of
mounting pressure in executing forward intervention, he said.
The extent of loss to the Bank of England was made public after
Britain pulled out of the ERM, he said.
While academic, the debate on whether the Asian miracle was a
mirage may go on. Market participants expected that much of the
Asian economic order would change as the economy contracts.
But many doubted that the IMF could reshape the Asian tiger
economies.
"Politicians resent what they see as international efforts to
dictate national policies," said an economist at a U.S. money
center bank.
The "front-loaded" structure of the IMF loan package, in which
some $10 billion would be made available in 1997, with subsequent
disbursement phased on a quarterly basis, would leave the IMF
with little leverage on Thailand's reform, the economist noted.
John Seel, watching the Asian economic scene for Bear, Stearns
and Co. in Hong Kong, said: "We have not seen a positive policy
response in Thailand. It has not convinced the market that it is
serious in adhering to what the IMF is asking it to do."
Seel was also disturbed to hear comments from opposition
parties in Thailand calling for the renegotiation of terms with
the IMF.
The rise of economic nationalism during hard times could
become a concern among foreign investors, said Luis Luis,
director of research at Scudder Stevens and Clark, noting,
"foreign ownership and offshore markets are easy targets."
But Luis warned against over reaction.
Fiery rhetoric is not always followed by political action, and
short-term fixes smacking of economic nationalism might become
harbingers of long-term policies, he said.
Prime Minister Mahathir Mohamad of Malaysia, known for his
denunciation of foreign speculators, recently made a U-turn to
lift restrictions on short-selling which had scared away foreign
investors.
Still, some Asian countries may prefer to follow the beat of
their own drummers, said one fund manager, recalling that earlier
this decade India had canceled borrowings from the IMF and
stopped reforms in their tracks.