Too early to gauge Bali fund flow impact

Too early to gauge Bali fund flow impact

Helen Ubels, Dow Jones, Sydney

Weekend bomb blasts in Bali stunned markets in Asia, but stock markets outside Indonesia were steady overall, with no wholesale exodus by funds.

However, the longer-term consequences on investment in Indonesia and the rest of Southeast Asia won't be clear until more is known, for instance, whether the three Bali bomb blasts were primarily targeting Westerners or the Indonesian government.

Until more details emerge, investors aren't sure whether this is a country-specific matter, fund managers say.

No group has yet claimed responsibility for the blasts, which at the latest tally killed 188 and injured more than 300. Suspicion has initially fallen on the al-Qaida terrorist group, and an affiliated group called Jemaah Islamiyah, which wants to establish a pan-Islamic state across Malaysia, Indonesia and the Southern Philippines.

"In all of these types of events, it is never the one-off event that really determines what investment markets do," said Andrew Fay, regional chief investment officer for Asia-Pacific at Deutsche Asset Management.

"Sure they have an immediate impact, but it's really whether its followed through and the course of action taken by governments" that will dictate the reaction of investment markets, he said.

Still, in the short term, some markets will be regarded as more high risk than others, and none more so than Indonesia, which has already long fallen out of favor with international investors.

Indonesia's benchmark Jakarta Composite Index tumbled 10.4 percent to close at a four-year low of 337.475 points Monday, while the rupiah hit a five-month low at Rp 9,350 to the dollar in the morning.

The blasts in Bali - the center of Indonesia's tourist industry and a popular destination attracting 1.4 million foreigners last year - could hurt the Indonesian economy and influence its politics, according to Standard & Poor's. The international ratings agency noted that the government's response to the situation will be critical for policy direction.

"If the government commits to fighting against terrorism, Jakarta will receive more international support, both economic and technical," S&P said, adding that the government would have to balance support for the U.S.-led war on terror with domestic political concerns.

In general, north Asian markets were stronger than Southeast Asian ones on Monday. Shares in South Korea and Taiwan finished 4.5 percent and 1.6 percent higher, respectively, still retaining some warmth from Wall Street's advances Friday.

Singapore's Straits Times Index kept its head above water, edging up 0.35 percent, while Australia's S&P/ASX 200 index ended up 1.2 percent.

On the downside, the Kuala Lumpur Composite Index gave up 1.2 percent, the Stock Exchange of Thailand Index lost 2 percent, while the Philippine Stock Exchange Index slipped 0.44 percent.

The key Japanese and Hong Kong equity markets were closed Monday for a public holiday.

Equity markets were attracting "a fair amount of risk premium" before the weekend bomb blasts, due to global economic uncertainty, political uncertainty linked to worries of a U.S.- led war against Iraq and concerns about oil prices, said William Pitman, the Singapore-based head of Asian markets at Henderson Global Investors, which has around US$2 billion invested in Asia.

"But this is much more specific to our part of the world and to that extent, I think there is an extra risk premium being put into the equation," he added.

The broader, longer-term ramifications on regional investment will depend on whether the Bali attacks are "perceived to be more of an endemic problem, which it has probably not proved to be yet," he said.

At Deutsche Asset Management, which has around $71 billion invested in the Asia-Pacific region, Fay doesn't anticipate any major fund flow changes.

"As an isolated event it's not driving funds flows, or what we're going to do in investment," he said.

However, these sorts of events tend to have a negative impact to a marginal extent on consumer spending patterns, he noted.

"It's a tragedy for so many families that people start to curb their spending patterns...and in the period we are already in - a global slowdown - it's obviously not positive."