Regional Outlook : Stocks Sizzle in S.E. Asia : * Market fever infects the new middle class, driving some regional markets up 100% or more in a year.
Jariporn Kiatsamphan, a 44-year-old Thai housewife, scanned the flashing electronic board in front of her with a look that turned instantly from hard-edged suspicion to undisguised joy.
“I’ve made a lot of money,” she acknowledged frankly, “but I want to make more profit. There are lots of opportunities to get rich here.”
Around her in the trading room of Kiatnakin Finance and Securities, a Bangkok brokerage company, housewives wearing diamond earrings shared cups of morning coffee while men in open-necked shirts murmured into portable telephones. Every time the numbers changed on the immense stock-price board, the conversation paused perceptibly before resuming.
Outside, a lavender Jaguar with red license tags--a sign the car was only a few days old--pulled to the curb with four more investors for Thailand’s booming stock market.
Stock market investing has become the hottest craze in Southeast Asia in the past 18 months, taking millions of newly enriched, middle-class Asians on a breathtaking roller-coaster ride with their life savings.
So far, many investors have made huge profits--on paper, at least. Despite a sharp correction at the beginning of the year, which caused market slumps throughout the region, billions of dollars continue to flood into the stock exchanges.
The reason is clear: In 1993, Southeast Asian markets were among the hottest in the world. The Philippines market index shot up 154%, Hong Kong rose 116%, Malaysia 98%, Thailand 88% (27% in the last two months of the year), and even conservative Singapore’s market bolted up 59%.
The bull run was helped along by billions of dollars flooding in from international mutual funds based in the United States, as American savers continued to switch out of money market funds into higher yielding stock funds. But in most of Southeast Asia’s markets, local investors, known as retail accounts to stockbrokers, accounted for the majority of share purchases.
“It’s a trickle-down effect of the wealth in the region,” said Simon Woods, general manager of the stock research firm Pesaka Jardine Fleming in Kuala Lumpur, the Malaysian capital. “Maybe gushing down would be more accurate.”
Most analysts agree that the economic strength of the region, with annual growth figures at 8% or 9%, made regional stocks good bets for an increase in value. In recent months, however, market fundamentals have given way to rank speculation as market indexes have soared through the roof. There is reason to worry.
“It’s a casino market,” said Tuangrat Kirtiputra, director of Thai Securities Co. Ltd., one of Thailand’s largest retail stock brokerage houses. “People realize they shouldn’t keep their money in the market. But those returns are so-o-o tempting.”
Consider this: Suwimon Chotwattanapun, another Thai housewife who took up investing to pass the time now that her children are in school, watched her investment in Shinawatra Satellite, a satellite telecommunications firm, zoom from $1.56 a share at the market opening on a day last month to $7.48 at the close of trading seven hours later.
“You watch the screen and you make money,” she said with a smile. “If I worked for an entire month, I couldn’t make the kind of money I am making here.”
As a result of these kinds of returns and this kind of enthusiasm, markets in the region have catapulted from being sleepy backwater exchanges a few years ago to internationally watched markets that rival the world’s leaders.
“Today, the world recognizes that the major economies are concentrated in East Asia, including Southeast Asia,” Malaysian Prime Minister Mahathir Mohamad boasted last November. “Such has been Malaysia’s achievements that the volume of shares transacted on the Kuala Lumpur Stock exchange has surpassed business done on the New York and Tokyo markets.”
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One recent day in Malaysia, a developing country with only 18 million people, market turnover was 380 million shares. On the same day, turnover on the New York Stock Exchange, the world’s largest, was 300 million shares. Market turnover in Bangkok now reaches $1.6 billion a day, more than the value in Hong Kong and Singapore combined.
One dramatic example of stock fever saw thousands of motorists bring traffic to a standstill in central Kuala Lumpur in the rush to buy shares in Malaysia’s soon to be privatized oil and gas company, Petronas Dagangan. “In future they should receive the forms in a more open space, like Merdeka Stadium,” growled Kuala Lumpur’s police chief, Mohamad Jeran Jani.
In Singapore, where the government plays the dominant role in many walks of daily life, stock market investing caught on only last year when officials decided to privatize the state-owned phone company, Singapore Telecoms.
To sell shares, the government launched what it called “Invest Singapore,” a slick public relations campaign about the benefits of share ownership. “The more assets each one of us has, the more we will work to enhance their value,” Prime Minister Goh Chok Tong told the nation in a speech laced with Singapore’s save-and-be-thrifty philosophy.
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More importantly, the government allowed workers to shift some funds in their social security saving accounts from low interest money market rates to stocks. To further encourage novice investors, it subsidized the price of 350 million shares of Singapore Telecoms for local investors, offering them at little more than half the eventual market price. Investors could even buy stocks at bank automated teller machines.
As a result, some $2.1 billion poured into the stock market from social security accounts in the last three months of 1993. The number of investors in the country went from 200,000 to 1.48 million, half the population, in a single month.
In Hong Kong, the only factor keeping more people from piling into the market was real estate values, which soared in tandem. While investors on the stock market doubled their money in 1993, investors in luxury real estate doubled the purchase price, which was often funded by a 90% mortgage.
None of this has come to the region without causing some well-founded concerns. “The market volatility these days is a bit scary,” said Eugene K.K. Law, director of research at Standard Chartered Securities in Hong Kong.
While Asian officials remain bullish about their stock markets in the long run, there have been increasing worries about the recent effect of rampant speculation on the markets.
Singapore’s finance minister, Richard Hu, warned last month that investors should be cautious about jumping in to booming markets. “Investors should not treat the stock market as casinos, buying and selling on rumors and hoping to make a quick profit,” Hu warned. “Investors must recognize that the higher potential return from stocks and shares reflect the greater risks involved, and should therefore be prepared to risk losses when markets turn down.”
In Malaysia, similar warnings from the prime minister and finance minister in December went unheeded and the market climbed to dizzying heights. Finally, last month a former finance minister, Daim Zainuddin, who was rumored to be a heavy market player himself, was quoted as urging investors to sell. As one tabloid put it in a banner headline, “Daim: Get Out Now, Don’t Say We Didn’t Tell You.”
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The result was panic selling that saw the market index collapse nearly 30% in a couple of days. Billions of dollars were lost and the press stationed photographers at the emergency rooms of hospitals in a grisly vigil for possible suicide victims.
“A lot of people are sitting on paper losses and a fair proportion are sitting on actual losses because of they were buying on margin,” said Wood, the Pesaka Jardine Fleming official. Margin buying means investors borrow money against stock to buy more stock.
Interestingly, markets from Singapore to Hong Kong and Thailand also declined sharply at the same time as Malaysia, though there was no regional news or event to explain it. As one analyst in Hong Kong put it, the markets were a correction waiting to happen and seized upon even the slimmest news to begin selling.
One factor which makes the Asian exchanges far more volatile than those in the United States or Europe is so-called “contra” trade, which amounts to little more than gambling. Taking advantage of a rule which allows investors up to a week to pay for stock once they have purchased it, many investors now never actually invest but merely buy and sell within the settlement period.
Ang Kok Heng, head of research for the big Malaysian retail broker TA Securities, said 60% of the market was in shares held less than a week. Further leveraging the market, he said, was the fact that the majority of investors had borrowed 50% of the money they invested.
“It gets dangerous when you combine leverage with the everybody’s gaming instinct,” said Pauline Almeida, research director for Phileo Peregrine Securities in Kuala Lumpur.
Financial historians point out that extensive use of margin trading was largely responsible for the 1929 stock market crash and some have wondered whether history may be repeating itself in Southeast Asia.
Another cause for concern in the region is the lack of strict regulation by financial authorities. Insider trading is so rampant in most countries that there is not much outsider trading.
When a reporter asked one Thai housewife where she got her stock tips, she proudly admitted her husband had provided her with advance word on several major developments at his company, a well-traded stock.
“All you have to do is track share performance before major announcements to see how pervasive insider trading is,” said Korn Chatikavanij, managing director of Jardine Fleming Thanakom Securities in Bangkok. “There’s a lot of social pressure to give friends information.”
In Malaysia, Union Paper, a toilet paper manufacturer, soared from $2 a share to $20 on rumors of a takeover that never took place. A plantation company called Lingui rocketed from 70 cents to $17 in a few weeks on acquisition rumors.
In addition, the small regional markets are much more susceptible to manipulation than are the bigger markets of the West.
A famed Thai investor, Song Watcharasriroj, was arrested briefly last year after it was disclosed that he had driven up the price of a company called KMC nearly 600% by trading millions of shares to himself at ever-increasing prices.
The government in Kuala Lumpur was forced to publicly deny that it was manipulating the market following a spate of rumors that the ruling party, which controls a number of companies, was hoping for a surge in stock prices to help pay for a local election campaign later this month.
“These are rumor-driven markets with a one-day time horizon,” said an American broker who asked not to be identified. “If they lose, they go home and cry and if they win they go out and buy a Mercedes.”
Thailand Stock Market
Quarterly adjusted prices, SET Index (in local currency)
Thailand’s stock index, which bolted up 88% in 1993, is typical of huge gains in Southeast Asian markets.
DEC. 31, 1990: 612.86
MARCH 29, 1991: 865.74
JUNE 30, 1992: 751.45
DEC. 31, 1992: 893.42*
DEC. 31, 1993: 1682.85*
* Close from earlier in period
Source: Tradeline IDD Information Services
Comparing Stock Markets The Dow Jones increase, about 14% in 1993, is dwarfed by the huge 154% gain in Manila. Such results are attracting U.S. investors to Southeast Asian markets.
Source: Tradeline IDD Information Services
