Asian Economic Contagion Gives Southland the Jitters

San Diego businessman Richard Franke didn’t even bother stopping in Bangkok on a trip to Asia earlier this month. This summer’s 40% plunge in the Thai baht had priced his firm’s blood pressure monitors out of that market.

Instead, he went to Malaysia to help out a new distributor shaken by that country’s similar woes. And now he is closely monitoring the Hong Kong stock market, looking for signs of problems that would threaten his sales to mainland China.

Although many Americans took little notice of Southeast Asia’s economic turmoil until it threatened their pensions this week, the effects of the “Mai Tai hangover” have been rippling through the Southern California economy for months, leaving shellshocked investors, traders and bankers in their wake.

And the collective angst rose sharply Thursday when the contagion spread to Hong Kong’s stock market, long considered a bastion of stability in an economically vibrant but unstable region.

“Nobody foresaw this and now everybody’s kind of stuck,” said Franke, vice president of sales and marketing at Pulse Metric Inc. “Both the suddenness and the amount of the [currency] decrease were really unique.”

For people in California, the last few months have been a sobering reminder that their position as the nation’s leading gateway to Asia and Latin America is a double-edged sword, allowing them to benefit handsomely from growth in those developing markets but leaving them extremely vulnerable to its growing pains.

“You’ve just got more at stake,” said Ernest Bower, president of the U.S.-ASEAN (Assn. of Southeast Asian Nations) Business Council, which represents U.S. firms doing business in Southeast Asia.

These problems also have a strong emotional resonance in Southern California, home not only to the U.S. offices of many major Southeast Asian companies and banks but to the nation’s largest Southeast Asian immigrant communities.

Those with friends or relatives in Thailand, for example, can monitor the crisis that provoked widespread street protests in Bangkok this week by reading one of a dozen Thai language newspapers distributed here.

Since July, Thai Farmers Bank Ltd., one of several banks serving California’s 200,000 Thai immigrants, has seen a sharp increase in customers repatriating funds to pay off loans or help out relatives.

“There is a sense among the Thai community here that they must help Thailand recover from this crisis,” said Pattrawan Vechasart, an official in the Thai Consulate in Los Angeles.

The reverberations are being felt throughout Southern California’s economy.

At the Parsons Corp., a Pasadena engineering firm involved in major construction projects around the globe, officials count themselves lucky. When the Southeast Asian currencies began their downward spiral last July, the firm had only one major contract in the region that was being paid in local currency.

But after renegotiating that contract to protect the company against future swings, Parsons Senior Vice President Ralph DiSibio still faced a very gloomy picture.

Across Southeast Asia, embattled governments looking for ways to reduce their budget deficits and bolster their ailing banks are cutting back on major infrastructure projects such as dams, ports, skyscrapers and bridges. And bankers saddled with nonperforming loans and bankrupt customers are cutting off private financing.

“Over the next six months, you’re going to see a 30% to 40% contraction in projects that would have gone on over those next six months,” DiSibio said. “They’ll be delayed and stretched out.”

For Parsons, that means a region previously considered one of its hottest growth markets has gone cold, forcing a short-term readjustment of corporate strategy.

“We’ll take whatever resources we have there, cut them back a bit, and focus our attention on Europe and the Mideast,” DiSibio said. “But we’re confident this is a short-term correction.”

Also caught in a vise are U.S. firms selling goods into those Southeast Asian countries. They have suffered a double-whammy from the currency depreciation, which both raises the prices of U.S. goods there and creates a dramatic slump in demand.

Once touted as the region’s hottest vehicle market, Thailand’s manufacturers now find themselves in serious trouble. Foreign auto makers are scrambling to reassess their plans for the region, given a 73% drop in vehicle purchases in Thailand last month, said Timothy Dunne, director of marketing research for Bangkok-based Automotive Resources Asia Ltd.

“This is still going to be their export base in the future,” he said. “But right now, it’s not a pleasant place to be.”

Giants like Microsoft Corp., which count Southeast Asia among their most important new markets, are spending lots of money to defend their sales in the region. That includes guaranteeing their software prices in the local currency to lessen the risks for their distributors.

Orlando Ayala, the Microsoft executive in charge of Southeast Asia, said his company is determined to maintain its market share in a region that brought in $200 million in sales last year and was expanding at more than 60% a year.

“We’ll do whatever it takes,” he said. “The name of the game is, we look beyond 12 months.”

However, few companies enjoy Microsoft-style deep pockets.

Smaller companies like Pulse Metric, the San Diego producer of blood pressure monitors, can’t afford to cut their prices to preserve sales in a shrinking market. Last year, the firm sold about $1 million worth of goods, half of it overseas.

“If this should stay where it is or get worse, I’d just have to write off the Thai market for however long it would take them to recover,” Franke said.

But he still has high hopes for the greater China market and Hong Kong, which is the major gateway for medical products going into the mainland.

Meanwhile, nervous investors who have moved their money out of Southeast Asia are looking for a safe haven to invest their dollars--a potential boon to Southern California’s real estate developers, property owners and high technology firms.

Richard Alter, who represents a group of ethnic Chinese investors, said he has experienced a “100% increase” in inquiries in recent weeks from clients looking for good projects, particularly in the hotel and office market. Other Asian investors are shopping for U.S. technology firms.

“This instability has given them a lot of confirmation that their markets are unstable and they should diversify their funds to the U.S.,” he said.

Not everyone is buying, however. When Thai multimillionaire Sondhi Limthongkul’s bankers began calling in his loans earlier this year, he was forced to begin dismantling his overextended media empire piece by painful piece. Among the things he was forced to give up was a majority interest in Buzz, the glossy Los Angeles magazine.

During a visit to Los Angeles this week, Limthongkul said he was sorry to relinquish control of the magazine, but he has already switched gears and now sees a way to profit from the very turmoil that has left him millions of dollars poorer. Next January, he plans to launch an online Asian news service to provide an “insider’s view” of events in Asia.

* REAL ESTATE SUFFERS TOO: The week’s market woes are already taking a toll on Hong Kong property values. D1