Market Newsletter : Southeast Asia Stocks Battered by Gulf Crisis : Higher energy prices cut into profit margins. And economic decline in the United States means fewer buyers for products.
Among the major casualties of Iraq’s invasion of Kuwait are the emerging stock markets of Asia, which were the world’s fastest growing last year. Charts of market performance in the days after the Aug. 2 Iraqi attack have headed south, while market turnover has almost evaporated.
That the Persian Gulf crisis has been bad news for investors is no surprise to Wall Street, where the Dow Jones industrial index has fallen 20% from its pre-invasion, July high. But compared to the battering taken by most of the Southeast Asian markets, the Wall Streeters have had a joy ride.
The Tokyo Stock Exchange led the Pacific Rim market decline early in the year, then continued to fall even when other markets recovered before the Iraqi invasion. Tokyo’s Nikkei index, at 22,390 now, is down 42% from 38,916 at the end of 1989, for reasons that have as much to do with Japan’s speculative stock and land binge of the 1980s as the current Mideast crisis.
The main cause of the Southeast Asian slump is as simple as the numbers at the gas pump: oil prices are heading through the roof in a region where the manufacture of goods for exports fueled the ‘80s boom. These economies are now pole-axed on two fronts--higher energy prices mean shrinking profit margins for manufacturers while a looming recession in the United States means fewer buyers for the television sets, computers and Nike athletic shoes produced in Asia.
Here’s how the region’s markets are shaping up . . .
Thailand takes a plunge. Home of the world’s best-performing stock market in 1989, Bangkok had become a speculator’s paradise, with amateur stock traders bidding the Stock Exchange of Thailand index up from 250 after the October, 1987, crash to 1140 on Aug. 1. But the Thai index slumped 40% in the three weeks after the Iraqi attack and it has yo-yoed ever since. Finally, the government forced brokers to raise a $195-million fund to buy shares. Prime Minister Chatchai Choonhavan made an unprecedented visit to the floor of the stock exchange to appeal for calm. Still, the Bangkok index now stands at only 655, and analysts worry about domestic political instability postponing decisions for future growth . . .
Taiwan tumbles. Renowned as one of the most volatile markets in Asia, Taiwan has fully lived up to that reputation since the Iraqi invasion, crashing 40%. The weighted price index is down 78% since February, which apparently sets some kind of world record. Many stock analysts regard the Taiwan exchange as more casino gambling than investing. And at least one respected market watcher expects it to continue down in coming weeks, eventually losing as much as 90% of its once lofty value . . .
Manila crumples. Even before Iraq’s Saddam Hussein attacked Kuwait, the Philippines economy had been crawling along under the burden of massive foreign debt and repeated coup attempts against President Corazon Aquino. The latest attempt this month helped push the market’s index down 40% since August. Along with the oil price boost crimping output, Manila has a new headache: some 45,000 Filipino maids, cooks and laborers in Iraq and Kuwait provided desperately needed foreign exchange. Officials fear those remittances may now dry up . . .
Malaysia and Indonesia least hurt. Both countries are exporters of oil. Indonesia is even a key player in the Organization of Petroleum Exporting Countries. But Malaysia is one of America’s largest trading partners in Asia, ranking as a major exporter of computer chips and a big producer of air conditioners and refrigerators for the U.S. market. And worries about a recession in the United States have sent the market in Kuala Lumpur down 25%. Even oil giant Indonesia has not been immune to the crisis. One of the nation’s largest private banks, Bank Duta, lost heavily in foreign exchange investments in Kuwaiti banks. The government stepped in and replaced the bank’s board and managers--but not before the Jakarta market index dipped 9% out of fears for the health of the country’s banking industry . . .
Singapore knocked. The island republic has successfully moved into high-tech manufacturing, but investors are worried that this sector is overly sensitive to interest rates and vulnerable to sudden downturns in orders from customers in the West. They have driven prices on the Singapore exchange down by a fifth. One factor helping Singapore is that it has huge oil-refining capacity. While it is a net importer of oil, it exports a higher value of refined petroleum products . . .
Hong Kong thrives. Once the most volatile in Asia, the Hong Kong Hang Seng index has so far squeaked by with a loss of “only” about 17%. Analysts say Hong Kong suffered its Waterloo last year after the political crackdown in China. Stock values are also closely tied to property values, not manufacturing output as elsewhere in the region. The colony is thus less vulnerable to energy price swings . . .
Despite the current gloom, most analysts agree that the region still has a bright future. “The long-term prospects are quite good,” said Jardine Fleming’s Tim Mckenna.
Thailand still expects growth in the range of 8% next year, with other countries following close behind. Bangkok-based broker Mark Greenwood reckons that Thai stocks were cheap with the index at 1,140 and now “are even a better deal below 800.”
Analysts expect less speculation now that the bubble has burst. Look for stocks with strong fundamentals rather than sexy, high-profile industries, they advise. Major reforms in Taiwan could finally end the roulette-table atmosphere there.
But there is a regional Dr. Doom. Marc Faber, a Hong Kong-based securities analyst known for his pessimistic forecasts, thinks the whole region may be heading for a further fall. Faber predicts a liquidity crisis as export orders from the United States dry up, leading to sharp falls in corporate profits. In particular, he says, “the Thai and Indonesian markets have a long way to go on the downside.”
The economic fallout from Iraq’s invasion of Kuwait on Aug. 2 has taken its toll on the market indexes of southeastern Asia, as well as in Tokyo and the United States.
Index Aug. 2 close Oct. 15 close Hong Kong Hang Seng 3,468.00 2,916.38 Jakarta composite 611.98 419.24 Kuala Lumpur composite 632.22 475.19 Manila composite 935.52 537.45 Singapore Straits Times 1,557.76 1,098.43 industrial index Stock Exchange of Thailand 1,142.63 652.75 (SET) index Taiwan weighted price index 5,771.28 2,688.60 Nikkei (Tokyo) 30,245.10 23,109.20 Dow Jones industrial index 2,864.60 2,416.34
