Back to future: SE Asian stock collapse?

Back to future: SE Asian stock collapse?

By Joshua Kurlantzick

BANGKOK (AFP): Thailand's stock exchange is rapidly falling through the floor, triggering fears in Southeast Asia that the region is heading towards another economic crisis, analysts said Monday.

"Foreign investors are deciding to completely abandon Thailand's market .... in the next six months, we'll see a major cooling off in all Southeast Asian regional markets," an analyst with a prominent foreign brokerage in Bangkok told AFP.

"Already, people can't be bothered with the Thai market, and the other regional markets are likely to suffer greatly as well."

"Even major, positive economic news (in Southeast Asia) just triggers one-day recoveries, and then nothing more. It's an ever- decreasing, very dangerous circle... except in Singapore, which is stronger."

Thailand's stock exchange has lost nearly 25 of its value since Jan. 1, while the Indonesian bourse has lost approximately twenty percent and the Philippine market has lost 27 percent over that time.

Foreign investors have already sold seven times more Thai stocks in 2000 than they did in all of 1999.

The Bank of Thailand has hired external consultants to study stimulating the Bangkok bourse, and the Thai cabinet held an "emergency meeting" on May 11 to examine whether the stock drop will cause an economic collapse.

It is unclear whether the cabinet or the consultants will have any effect.

Despite high praise from the IMF, which on May 9 lauded Thailand's "impressive" economic recovery, many foreign and local retail investors believe Southeast Asia's alleged economic and political reform is just a smokescreen.

Many investors are concerned that Thai and Indonesian banks underreport their non-performing loans, that Thailand faces mounting public debt and that Southeast Asian states have failed to establish a government-backed institution to manage insolvent companies' assets, one analyst said.

In addition, few Southeast Asian states have the kind of sexy Internet companies that still attract investors despite recent losses on the Nasdaq index, he said.

And political uncertainty throughout the region also is deterring foreigners.

Indonesia remains plagued by violence in Aceh, the Maluku islands and even the main island of Java. The southern Philippines has witnessed several recent hostage crises, and Thailand is due for a general election before the fall.

Because of this political uncertainty, as well as many citizens' belief that Asia's economic recovery is still fragile, consumer spending in Southeast Asia remains much lower than in pre-crisis years.

Because of its huge public debt, the government has been unable to adequately stimulate Thais to open their wallets, said Merrill Lynch Phatra Securities' Theerapong Vachirapong.

The government "has basically failed to encourage more consumer spending," he said.

Financial doomsday could loom just over the horizon.

Tuesday's meeting of the U.S. Federal Reserve, at which the Fed is expected to raise U.S. interest rates by at least fifty points, may be the catalyst that converts Southeast Asia's market slide into a wholesale economic collapse.

Thai commerce secretary Supachai Panitchpakdi has admitted that even more foreign investors may pull out of Thailand after a U.S. rate hike, since foreigners would seek more secure places to put their money.

And any major slowdown in U.S. growth could wreck Southeast Asian manufacturing and agrobusiness.

Approximately 25 percent of Thai exports go to the United States, and several Southeast Asian states have made export-led growth a key to their economic recovery.

But Arporn Chewakrengkrai, economic advisor to the prime minister, told reporters that a rate hike would not have a serious effect on Thailand, as the country enjoys a current account surplus and can weather a major capital outflow.

"The impact would not be as severe as expected, thanks to the surplus in the country's current accounts," he said.

And though exports to the United States are important to Thailand's economy, Thai manufacturers have been diversifying their client base and exporting to more states, he said.