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Asia’s Economies Rise – But The Stock Markets Slump

SINGAPORE (dpa) – East Asia regained its status as the world’s fastest growing economic neighbourhood in 2000, but the macroeconomic performance failed to register on the region’s stock markets.

Southeast and East Asian markets took a collective dive this year, indicating that doubts remain about the region’s long-term prospects even though the Asian Development Bank (ADB) expects Asia’s gross domestic product to grow 6.9 per cent this year.

The consensus is that Asia needs to get its political house in order and continue to push through economic reforms if it hopes to win back institutional investors to its stock markets and foreign direct investment to its shores.

“Political uncertainties are dragging on, keeping most (investors) on the sidelines,” said Robert Penaloza, investment manager of Singapore’s Aberdeen Asset Management.

“There has to be more widespread and meaningful reforms which restore the integrity of the markets and lower sovereign risks before we see a major in-flow of funds,” he added.

By the first week of December, indexes in the region’s strongest economies such as Hong Kong, Malaysia, South Korea, Taiwan and Singapore had fallen about 10, 20, 47, 40 and 24 per cent, respectively over the twelve-month period.

Japan’s Nikkei bourse, after soaring 35 per cent last year, had fallen 22.4 per cent as of December 8, 2000.

Hong Kong’s second board – the Growth Enterprise Market, launched in November 1999 in the image and likeness of Nasdaq, won the dubious distinction of being the world’s worst performing index this year with a cumulative fall of 65.46 per cent by its first birthday last month.

Meanwhile, the little bourses of Asia’s little tigers were disappearing from international investors’ computer screens this year with record falls of 52, 35, and 45 per cent in Indonesia, the Philippines and Thailand, respectively.

Rising political instability in those countries was partly to blame.

“It’s very hard to convince investors to put their money into the country when the captain of the ship is being portrayed as captain crook,'” quipped Astro del Castillo, research head at the Manila- based A&A Securities Inc., in reference to Philippine President Joseph Estrada’s ongoing impeachment trial for corruption.

Vietnam’s Securities Trading Centre, opened on July 28, was the only Asian bourse to rise this year, albeit with only four listed companies on it and average daily trade amounting to 80,000 dollars.

Asian currencies fared no better in 2000, with depreciations across the board (save in insular Malaysia which has imposed currency controls since 1998).

The Philippine peso set off another regional currency tumble in October, when the Estrada scandal broke, dragging other currencies such as the Thai baht and Indonesian rupiah down with it.

On the bright side, the region’s under-valued currencies have acted as a draw for foreign direct investments (FDI), especially from Japan which continued to out-source its manufacturing to the rest of Asia.

FDI by transnational companies in Asia amounted to 106 billion dollars in 1999, and in-flows this year appear to have been similarly high.

New FDI projects are expected to reach 15 billion dollars in South Korea (up 3 per cent), 7.5 billion in Thailand (up 66 per cent), more than 4 billion in Malaysia, about 1.5 billion in Vietnam and an unbelievable 10 billion worth in Indonesia, which registered a divestment of 3.3 billion dollars in 1999.

Many of the new projects are coming from Japan, whose investment out-flows amounted to 23.6 billion dollars during the first nine months of 2000 alone, compared with 22.7 billion for all of 1999.

“I have so many investors coming to my office from Japan,” said Dharmawan Djajusma, a director at Indonesia’s Investment Coordinating Board. “Maybe investors have decided to come back,” he added hopefully. But while there are more projects on paper, diplomatic sources note that few real investments have started up in Indonesia this year.

The new project proposals may be more an indication of what’s going on in Japan, where companies continue to out-source their production to Southeast Asia to take advantage of their undervalued currencies and cheaper labour.

“We’re seeing a cultural change in Japan that it is now legitimate to down-size and sack workers, and that means even more FDI is coming from Japan,” said Neil Saker, head of regional economic research at SC Global Securities.

Japan can’t continue to out-source forever, and with China expected to enter the World Trade Organization (WTO) next year, the rest of Asia can expect reductions in FDI in the near future.

The Association of Southeast Asian Nations (ASEAN), in particular, needs to do some soul-searching on how it is going to draw investments back to its shores, now that simply being anti-communist and “market oriented” is not enough to attract foreign capital.

The new investment scene will require ASEAN to take reforms further and clean up its political instability and corporate scene to make it shine compared with China.

“The key is how to get foreign investors to come back,” said Song Seng Woon, an analyst at GK Goh Research in Singapore. “Issues such as the capital controls still in place (in Malaysia) … people will see ample opportunities elsewhere.”

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