The chaotic downturn on Wall Street and shakiness in U.S. consumer confidence raised fears across Asia on Tuesday that the region's only real hope for economic salvation--exporting its way out of crisis--could be slipping away.
"Right now the U.S. is the only big economy we can rely on," said Akihori Wakabayashi, international general manager with Benkan Corp., a Japanese maker of pipe fittings and joints. "If the U.S. starts to deteriorate, the whole world will be in trouble."
Most Asian markets dropped again on Tuesday, and Malaysia shocked the region by imposing draconian currency controls. Analysts said more such protectionist moves, along with higher social costs, could result if the region finds economic growth blocked.
"A stark possibility is that Asia [then] closes up and becomes more protectionist," said Robert Subbaraman, Southeast Asia strategist with Lehman Bros. "From a people point of view, [a global downturn] could mean rising unemployment, rising social unrest and social instability."
Although the U.S. economy remains healthy, Wall Street trouble can change that abruptly should Americans decide they're not feeling that well-off after all and drop plans to buy that new car or remodel the house.
This, Asians fear, could chill demand and sharply undercut U.S. investment in Asia, tourism and demand for Asian exports, which remain among the few bright spots in a bleak economic horizon.
"Early this year, we planned on a relatively quick recovery by increasing exports," said You Jong Keun, special economic advisor to Korean President Kim Dae Jung. "Then the Southeast Asian markets vanished and the Japanese market shrank. But we still counted on the American and European markets . . . . If foreign demand crashes along with domestic demand, we may be falling through a bottomless pit."
Stocks fell sharply Tuesday in South Korea, Singapore, Hong Kong and most other regional markets after the Dow Jones industrial average plunged a dramatic 512.61 points Monday. A notable exception was Japan's Nikkei, which rose 261.74 points to close at 14,369.63. Japanese stocks benefited from a suddenly stronger yen.
Meanwhile, Malaysian Prime Minister Mahathir Mohamad said his government plans to establish fixed exchange rates that reflect "exactly the value of things," according to Reuters. He also said currency controls will be imposed and that local and foreign investors will be required to hold stocks for at least a year.
The pronouncements raised the threat of renewed Asian protectionism and more state control over local economies. That specter is particularly worrisome coming on the heels of recent efforts by Hong Kong, Japan and elsewhere to prop up sagging stock markets with public money.
But the economic health of America is on everyone's mind.
Japan's Suzuki Koki Manufacturing Co., a maker of machine tools used to produce chain saws, said its export business has already dropped in half as its Asia markets collapsed. "If the U.S. economy stumbles and Southeast Asian countries can't export to the U.S., we'll be in big trouble," company President Norimichi Suzuki said. "If it gets worse, no one would be able to survive anymore."
Small and medium-sized companies tend to feel economic shifts first. But even Asia's multinationals, whose global factory networks and distribution strategies would be expected to help those companies weather a downturn, are expressing concern.
"While we're not excessively worried about the [U.S. stock market] fluctuations, we would be concerned if there was a U.S. slowdown," said Bob Pomeroy, a spokesman with Fujitsu Ltd. "We hope it will remain healthy."
Etsuko Kawase in the Tokyo bureau contributed to this report.
* MARKET REBOUND: Stocks powered back in a buying frenzy as the Dow gained 288 points. A1
* SEEKING SHELTER: Some 401(k) investors are beginning to move money out of stock funds. A1
* STILL HEALTHY: The U.S. economy is strong but more vulnerable after the past week. A1
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Amid Soaring Volume . . .
Tuesday was the busiest trading day ever on the New York Stock Exchange and the second-busiest on Nasdaq. The five heaviest-volume days for each market:
Date: Volume (billions)
Sept. 1, 1998: 1,205
Oct. 28, 1997: 1,201
Aug. 27, 1998: 0.935
Aug. 31, 1998: 0.915
Aug. 5, 1998: 0.850
Date: Volume (billions)
Oct. 28, 1997: 1,354
Sept. 1, 1998: 1,259
April 22, 1998: 1,026
Aug. 31, 1998: 1,004
Oct. 1, 1997: 0.971
. . . Stocks Rise Across the Board . . .
Percentage gains in major indexes on Tuesday and year-to-date:
Index Tues. change YTD change Morgan Stanley tech +7.3% -15.1% Nasdaq composite +5.1 +0.3 Morgan Stan. consumer +4.6 +4.1 S&P; 500 +3.9 +2.5 Dow industrials +3.8 -1.0 Keefe Bruyette bank +3.4 -12.2 NYSE composite +3.2 -3.0 Amex oil +3.1 -11.4 Russell 2,000 +3.0 -20.3 Morgan Stan. cyclical +2.1 -14.5
. . . And Lots of Cash Still Waits
Month-end assets of money market mutual funds, and latest (Aug. 25), in trillions:
August 25: $1.23
Source: IBC Financial Data