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.