Weaker monies benefit SE Asia in long term

Weaker monies benefit SE Asia in long term

HONG KONG (Reuter): Depreciation in Southeast Asian currencies
will benefit the region in the long-term, providing investors
with a more accurate return on their investments, fund managers
said.

"In the long run, it's a good thing," said Eugene Chung,
regional strategist at SBC Warburg.

"If companies are going to start to be investing their capital
more prudently, then we can expect a higher return on that
capital, we can expect higher earnings and, therefore, better
growth in the long term."

Chung said the cost of capital in Southeast Asia had become
mispriced, with markets under-estimating the region's risk and
over-estimating its growth potential. The current correction will
strengthen Southeast Asia's investment potential as the risk is
more accurately priced in, he said.

Daniel Hemmant, currency fund manager for Guinness Flight
Asia, said the region had become a victim of its own success.

"As with other emerging markets, Southeast Asia in the past
has been subject to a lot of hype. That's certainly been
justified because its economic performance has been exceptional,
but inevitably it gets overblown," he said.

The Thai baht has shed 25 percent of its value since July 2
amid concern about the country's ability to service bad loans
built up by banks and finance companies, who lent liberally to an
inflated property sector.

Much of the lending was short-term and made in foreign
currency, exposing the financial sector to yet more pain as the
baht slides.

Although other Southeast Asian nations fell victim to currency
speculation as the Thai baht sank, analysts said economic
comparisons between Thailand and other nations were largely
unfair.

Economists said the Indonesian currency against the dollar
will not take the wind out of the economy's sails, with inflation
seen remaining within government targets.

"I don't think the impact will be massive," said Daragh Maher,
an economist with ING Barings in Singapore.

"On the corporate level, you may see certain companies feeling
the pinch because of higher import bills, but on the macro level
I don't think it will come to that much."

The rupiah, which started the year at 2,363 to the dollar, had
fallen more than 10 percent by Friday's close to about 2,605.

Many Southeast Asian economies feature current account
deficits, a decline in exports and asset price inflation in their
property sectors, but few are as exposed as Thailand to foreign
debt, said Bank of America.

The bank said of Thailand's external debt of US$90.3 billion,
$31.5 billion was made up of the Bangkok International Banking
Facility.

This system allowed certain banks in Bangkok to borrow cheap
U.S. dollars and lend in baht, which carried much higher
interest. The fixed exchange rate protected the banks from
currency loss when they switched out.

All the debt is short-term, and most of it is denominated in
U.S. dollars. No other Southeast Asian nation is similarly
exposed, although the Philippines, Indonesia and Malaysia have
been hounded by currency speculation in Thailand's wake.

The Philippines, whose currency has depreciated to 28.5 to the
U.S. dollar compared to 26 before flotation on July 11, is
nowhere similar to Thailand, Bank of America said.

Exports are growing by 22.8 percent in the first five months
of this year, while the current account deficit is among the best
in Asia at 4.1 percent of gross domestic product.

Hemmant said any further weakness in the baht is bound to
ignite further contagion throughout the rest of the region,
regardless of economic fundamentals.

While cheaper currencies and more accurate valuations will
improve the region's competitiveness over the longer-term,
Southeast Asia can expect to suffer from an image problem in the
short-term, said Merrill Lynch chief economist Nicholas Kwan.

Stocks -- Page 11

Currency -- Page 12