More bad news in store for Asian markets

More bad news in store for Asian markets

By P. Parameswaran

SINGAPORE (AFP): Asian financial markets will remain depressed
as they undergo a correction after their second phase of recovery
from the regional turmoil with analysts unsure when the downward
adjustment will end.

"In assessing the fundamental issues confronting Asian
economies -- both external and internal -- there is more downside
to go," said Fong Cheng Hong, senior vice-president for research
at Nomura Singapore Ltd.

She said the current market adjustment appeared steep and if,
at the same time, Wall Street suffered a 20-to-30 percent
correction, as some analysts predict, Asian stocks could plunge
to levels unseen since financial turmoil broke out in the region
in mid-1997.

Asian currencies are also expected to shrink in line with a
declining yen, according to forecasts by Barclays Bank and ANZ
Investment Bank.

Stock markets across the region fell by up to 20 percent since
Feb. 10 from their peaks of the second mini rally which started
in September 1998, according to a Nomura study.

The first mini rally, which was very brief, began in January
last year, six months after currencies in Asia plunged and caused
stock and other asset prices to crash and pulled the brakes on
the region's rapid economic growth.

Fong said among the external worries that would keep asset
prices down were financial chaos in Latin America and Brazil in
particular, the unsettled Russian problems, a slowdown in world
growth and further deterioration of Japan's economy.

She said easing of debt overhang in the Asian banking and
corporate sectors was proving much more difficult and severe than
expected.

There was limited room for Asian interest rates to ease in the
coming weeks while exports, initially thought to be Asia's
savior, were still mostly on downtrend with the exception of
South Korea and Malaysia, Fong said.

ANZ Investment Bank said in a bulletin to clients that Japan's
central bank, the Bank of Japan (BoJ), would ultimately adopt a
monetary stance that would weaken the yen and exert pressure on
other Asian currencies.

"We are of the opinion that BoJ will ultimately bow to
pressure and start underwriting new issuance of Japanese
government bonds (JGBs)," it said.

The ultimate impact of such a monetary expansion in Japan must
be to depreciate the yen, most probably back to the 140-150 range
against the U.S. dollar by the latest second quarter of this
year, ANZ Bank said.

"The impact of such a probable yen move, coupled with no
further rate cuts from the Fed (U.S. Federal Reserve Board), must
be pretty negative for Asian currencies," it warned.

Most of the offshore players surveyed by ANZ Bank in the past
week have indicated that they expect Asian currencies to lose
between 5 percent and 8 percent in value against the dollar in
line with the yen dip.

U.S. investment house Lehman Brothers forecast the yen could
hit 132 by June.

Barclays Capital, a unit of Barclays Bank, warned that the
risk of renewed regional exchange rates weakness was growing.

"Although levels seen in January last year do not look likely,
forces are building to push currencies back to levels seen before
the rally at the end of 1998," said Kate O'Donoghue, analyst with
Barclays Capital in Singapore.

Most Asian currencies fell to record lows in January 1998.

Donoghue said while Asia's asset market rally late last year
attracted overseas funds and supported the regional balance of
payments, there could be a portfolio outflow if growth
disappointed and the recent rally faltered.

"This will mark a reversal of recent currency stability," she
said.