Asia - Economic Data & News

Re: Asia - Economic Data & News

Postby winston » Tue Sep 30, 2008 5:44 pm

Asian Regulators Ban, Tighten Curbs on Short Sales By Bomi Lim and Janet Ong

Sept. 30 (Bloomberg) -- South Korea, Taiwan and Indonesia placed bans on short selling as declines in global stock markets deepened after the U.S. House of Representatives rejected a $700 billion plan to rescue the nation's financial system.

Regulators in Seoul said they would temporarily ban short selling on all stocks to arrest a 24 percent slump in the nation's stock market this year. Indonesia's stock exchange banned short selling for the month of October, citing unstable market conditions.

Taiwan, which on Sept. 21 barred the short-selling of 150 stocks for two weeks until Oct. 3, said it would tighten limits on short selling for the remainder of the year. It didn't say if the ban would end on Oct. 3 or be extended.

The measures by the Asian regulators came after U.S. stocks plunged yesterday, with the Standard & Poor's 500 Index tumbling the most since the 1987 crash. Regulators in the U.S., U.K. and Australia have taken similar measures on short selling.

``There is no reason why our market has to be in a panic because of the U.S. situation,'' Lim Seung Tae, secretary general of South Korea's Financial Services Commission, told reporters in Seoul. Lim didn't say how long the ban, which takes effect on sales starting tomorrow, would last.

South Korea's Kospi index dropped 0.6 percent today while Taiwan's Taiex index lost 3.6. The Taiex fell 33 percent this year.

Naked Shorts

The Indonesian stock market is closed for a holiday from today until Oct. 3. The benchmark Jakarta Composite Index fell 0.7 percent yesterday is down about a third this year.

South Korea, where so-called naked short sales, in which traders don't borrow the shares, are already banned, said last week it would increase oversight of short selling and make it harder for investors to borrow stocks.

It will also loosen, until the end of this year, the daily limit on companies buying back their shares, allowing them to buy 10 times more stock, Lim said.

Hong Kong said it would take ``more aggressive'' action against so-called abusive short sellers while the Philippine Stock Exchange approved a circuit breaker rule for a 15 minute trading halt if the benchmark index drops 10 percent from the previous day's close.

The Hong Kong Securities and Future Commission said its tougher measures ``may include market-wide controls and/or targeted action against individual persons or entities involved.''

Hong Kong's Hang Seng Index rose 0.8 percent today, trimming its decline in 2008 to 35 percent.

`Short-Term Solution'

Short sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

Taiwan's Financial Supervisory Commission said in a statement late last night that the amount of borrowed shares that can be traded each day will be limited to 10 percent of a company's listed stock, from 25 percent. Institutional investors will be limited to trading borrowed shares equivalent to no more than 1 percent of a company's total listed shares, from 10 percent now.

``These measures by FSC are short-term solutions to boost investors' sentiment and their impact is limited,'' said Dominic Lin, who helps manage the equivalent of $2.4 billion as a fund manager at HSBC Holdings Plc in Taipei. ``Investors are waiting to see if the Fed will cut interest rates.''

Stabilization Fund

Taiwan's National Stabilization Fund is monitoring the market and will enter it when necessary, Vice Premier Paul Chiu said in a briefing today. The state fund was created in March 2000 with NT$500 billion ($15.5 billion) to help shore up the market when it is affected by non-economic factors.

The U.S. Securities and Exchange Commission halted the short selling of 799 financial companies in a move to combat investors seeking to drive down shares following the collapse of Lehman Brothers Holdings Inc. and the bailout of American International Group Inc.
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Asia - Economic Data & News

Postby ishak » Tue Sep 30, 2008 9:44 pm

Asian governments act to prop up stocks, currencies
Reuters, Tue Sep 30, 2008

By Rafael Nam

Asian governments from South Korea to Indonesia stepped in swiftly Tuesday to try to prop up markets reeling from an overnight plunge in the United States after U.S. lawmakers rejected a $700 billion plan rescue plan for the financial industry.

Throughout the region, finance authorities and central banks spoke up to defend the soundness of their economies and acted by tightening stock-selling rules and buying tumbling currencies hurt by the flight of money from emerging markets.

In Taiwan, the president, vice premier, central bank and financial regulator made moves and comments to ease jittery markets.

"Taiwan's economic fundamentals are still good," President Ma Ying-jeou said in a speech at a local event. "We have the means to weather this global financial crisis."

India's finance minister, Palaniappan Chidambaram, stepped in to assure investors that market regulations would be tightened if needed.

"There is nothing to worry about. The regulations that are in place are adequate. If the regulations are to be tweaked, we will do so," he told reporters.

Malaysian Deputy Prime Minister Najib Razak said the government was maintaining its growth forecast of 5.5-5.8 percent for the year, adding the country was on track with opening its markets despite the Wall Street collapse.

Among Asia's financial market watchdogs, Taiwan's top financial regulator placed tighter limits on the short-selling of stocks, while Hong Kong's Securities and Futures Commission warned it would not tolerate abusive practices and could impose market-wide controls.

OUTRIGHT BANS

Other governments moved to outright bans.

Indonesia's stock exchange said it would prohibit short selling of stocks in October, and South Korea said it would do so for the time being while at the same time increasing the amount of shares firms are allowed to buy back.

The restrictions or outright bans on short selling follow similar actions by U.S. and European regulators this month, and come as Asian stocks head in September for their biggest monthly slide since the financial crisis a decade ago.

The failure Monday of Washington's biggest and most comprehensive bid to keep financial sector shockwaves from tearing up the real economy handed the U.S. S&P 500 stock index its biggest decline since October 1987 and the Dow Jones industrial average its biggest points fall on record.

Asian stocks suffered heavily in September, victims of a sell-first-and-ask-later mentality among global investors. With risk aversion widespread, emerging market holdings have been among the first to be sold, analysts have said.

The MSCI index if Asia-Pacific stocks outside Japan is down about 16 percent in September, similar to the slide seen in the same month eight years ago and potentially its largest decline since October 1997.

"Despite the fact that the U.S. is at the center of the crisis, every time the crisis escalates, capital leaves emerging Asia," said Citigroup analysts in a note to clients on Tuesday.

"This is probably a result of flight to quality. But it also provides strong evidence (that) refute the so-called decoupling thesis," they added.

The tighter rules on short-selling, combined with expectations that U.S. lawmakers will eventually approve a rescue plan helped many Asian stock markets pull back from their day's lows, but analysts expect broad risk reduction to continue as investors pull money out of the region.

CURRENCIES UNDER FIRE

Asian currencies have also come under fire this month.

The South Korean won dropped 1.5 percent Tuesday, bringing its loss for September to 9.8 percent, its biggest monthly percentage loss since December 1997. Its loss for the year so far is well over 20 percent.

The falls Tuesday came despite some talk over dollar-selling intervention by the foreign exchange authorities and even after the Finance Minister said the country would spend part of its foreign exchange reserves to stabilize markets if necessary.

South Korean authorities have spent more than $30 billion this year to try to underpin the won.

Other governments also moved to support their ailing currencies. The Philippine central bank sold dollars Tuesday to prop up the peso, while the Bank of Thailand intervened on the baht to keep its moves in line with other Asian currencies though it did not specify which action had been taken.
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Re: Asia - Economic Data & News

Postby winston » Mon Oct 06, 2008 4:10 pm

SKorea tries to speed up talks on US$80b fund

South Korea, China and Japan will discuss speeding up the creation of an US$80 billion (HK$624 billion) fund to help protect Asia from the global financial turmoil, officials in Seoul said.

The Strategy and Finance Ministry said deputy finance ministers from the three countries will meet next Monday on the sidelines of the International Monetary Fund's annual meeting in Washington.

Their finance ministers met in May and agreed to upgrade a currency swap scheme. They were supposed to meet again in May next year to discuss details.

But the vice-ministers will meet next week to discuss bringing forward the ministerial talks, a ministry spokesman said.

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Re: Asia - Economic Data & News

Postby millionairemind » Tue Oct 21, 2008 7:24 pm

Financial crisis is shifting power to Asia, says HSBC boss Stephen Green
THE crisis consuming global markets is part of a fundamental shift of power from the US to emerging economies in China and the Middle East, according to Stephen Green, chairman of HSBC.


By Katherine Griffiths, Financial Services Editor
Last Updated: 7:30AM BST 21 Oct 2008

Speaking at a financial conference in Dubai, the banker also condemned the financial model that has led to the crisis as "bankrupt".

The crisis, probably the worst since the 1929 Wall Street crash, will offer several lessons, Mr Green said, but added that the underlying trend of movement from West to East would "not be derailed".

"The rebalancing of the global economy towards Asia, home to over half the world's population, and its implications for the Middle East, is the shift that will affect financial markets most profoundly," he said.

He pointed to the implosion in sub-prime mortgage lending in the US as the flashpoint but added it was "far from the only villain in town".

"The complexity and opacity of certain financial instruments reached a point where even senior and experienced banks had trouble understanding them, let alone investors," he said.

Sub-prime lending exploded because bankers found ways to package up the debts and sell them on. Driving the process was Western consumption, fuelled by cash pumped into the US and elsewhere from developing countries, where savings surpluses have built up, Mr Green said.

The HSBC chairman also criticised the bonus culture at banks, "which has so often encouraged too much opacity and excessive risk-taking".

He added that the "high-leverage model of finance is bankrupt" and said securitisation of loans would survive. "You cannot bring the whole of the world's capital markets back on to banks' balance sheets."

HSBC, one of the world's best capitalised major banks, has refocused on Asia and developing markets after a disastrous foray into US sub-prime lending. However, problems at its US sub-prime division, Household International, emerged much earlier than at other lenders and the bank is seen as having weathered the storm well.

HSBC yesterday struck a £351m deal to buy almost 90pc of an Indonesian lender, Bank Ekonomi.
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Re: Asia - Economic Data & News

Postby millionairemind » Wed Oct 22, 2008 10:01 am

GLOBAL FINANCIAL CRISIS
Small firms in Asia may face big debt problems


(HONG KONG) A big wave of defaults could be forming among small and medium- sized companies in Asia, raising the spectre of a pile of bad loans at the region's banks and a further plunge in investor trust.

Several Hong Kong companies have already shuttered factories in China, including home appliance maker BEP International Holdings and toy maker Smart Union Group.

They may not be the only ones. Exporters, and property, shipping and retail companies could be hit because they racked up debt and expanded aggressively in the boom times, leaving them ill-equipped for the bust being seen across Asia, analysts said.

Slowing economies are crimping cash flow and profits in the region. At the same time, access to capital has been severely constrained as the global financial crisis sparks widespread risk aversion, choking off lending for smaller companies which are in most need of funds.

'It's inevitable that default rates will rise in Asia as these companies are now struggling to obtain new debt capital or simply to roll over their repayment obligations,' said Scott Bennett, a fixed-income fund manager for Aberdeen Asset Management in Singapore.

'SMEs have less access to capital, both debt and equity, and they don't have large, untapped credit lines or the sizeable cash reserves that larger and more mature corporates have.'





Small-cap stocks on Hong Kong's main index have fallen 63 per cent so far this year, exceeding the 52 per cent decline for mid caps and the 38 per cent falls for large-cap companies.

Meanwhile, the region's high-yield bonds have been among the hardest hit globally this year, even though there have been only a handful of defaults in the past several years.

A key measure of risk aversion for Asian 'junk- rated' credit, the iTRAXX Asia ex-Japan high-yield index, surged to a record wide of 950 basis points this month, rising threefold this year.

Some bonds are already trading at pennies to the dollar.

Bonds due in 2014 for South Korea's Magnachip Semiconductor were quoted at 6.5 cents to the dollar after Standard & Poor's last week cut ratings on the chip maker to CCC, well below investment-grade, due to 'severe liquidity problems'.

A wave of bankruptcies also runs the risk of hitting earnings at regional lenders, given their high exposure to SME loans, making them less likely to lend at precisely the time when companies need it most.

Asian banks excluding Japan already have the highest ratio of non-performing loans to total loans of any emerging market region, at 4.9, according to data compiled by ING.

Indonesia, Pakistan, Thailand, China, Malaysia and the Philippines all have above average ratios of non-performing loans to total loans among global emerging markets.

Andy Mantel, portfolio manager with hedge fund Pacific Sun Investment Management, recommended selling short China Construction Bank, Bank of Communications, and Bank of China, based on the increasing chances that bad loans on their books may multiply.

'We feel that valuations of Chinese banks are still too high because of slowing loan books, increased non-performing loan risks, and investment losses stemming from falling equity prices,' he said in the widely read The Gloom, Boom and Doom report. -- Reuters
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Re: Asia - Economic Data & News

Postby millionairemind » Fri Oct 24, 2008 9:21 pm

Guess who is going to need it first???

October 24, 2008, 9.51 am (Singapore time)

Asia eyes US$80b FX swaps fund launch by H1 2009

BEIJING - East Asian nations will move to form an US$80 billion currency swap scheme by the first half of 2009 to fight the global financial crisis and to launch a regional surveillance agency, according to a statement on Friday.

The agreement would give to any of the signatory nations access to a foreign exchange reserves pool of at least US$80 billion in the event of a financial emergency
.

Thirteen Asian economies, comprising a so-called Asean+3 group, agreed in May to upgrade the swap scheme, taking them a step closer to creating a full-scale Asian monetary fund, which has gained support in the region as the financial sector turmoil dampens Asian growth.

'Leaders at the meeting shared the need of stepping up regional cooperation to cope with the global financial crisis and to coordinate policies,' South Korea's presidential office said in the statement.

'We agreed to strengthen Asia's role by aggressively participating in international collaboration through multilateral cooperation systems... and to speed up cooperation to complete formation of the fund by the first half of next year.'

Leaders of the Association of Southeast Asian Nations (Asean), grouping 10 Southeast Asian nations, held a breakfast meeting of Asean+3 with China, Japan and South Korea, just ahead of the Oct 24-25 Asia-Europe summit (Asem) in Beijing.

The swap fund initiative will replace the existing arrangement of mainly bilateral currency swaps, called the Chiang Mai Initiative (CMI), and create a more powerful self-managed reserve pooling mechanism governed by a legally binding single contract.

South Korea, China and Japan had agreed to provide 80 per cent of the total, with Asean taking the remainder. They are discussing each country's contribution ratio and how to manage it.

Asean groups Cambodia, Malaysia, Indonesia, Singapore, Vietnam, Philippines, Laos, Thailand, Myanmar and Brunei.

The Asean+3 nations also agreed to work together to form a monitoring organisation that would step up surveillance of the region's economies, the statement added.

Asian countries have been considering measures to insulate themselves from the financial crisis, amid doubt about roles of global monitoring agencies in dealing with Asian crises.

Separately, South Korean President Lee Myung-bak told the Asean+3 meeting that future discussions to reform international financial systems needed to reflect the interests and positions of emerging economies.

'Lee also called on expansion of a multilateral coordination regime, which has been in discussion, to include emerging economies, taking into consideration their economy size and development experiences,' the statement said.

The world's eight major countries, including Russia, have been leading the coordination regime. -- REUTERS
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Re: Asia - Economic Data & News

Postby millionairemind » Tue Oct 28, 2008 7:57 am

Published October 28, 2008

EYE ON THE ECONOMY
This may be worse than 1998 Asian crisis, warn economists
No safety in any region as the whole world is seeing slower growth

By LYNETTE KHOO

(SINGAPORE) Pain is seeping in as Singapore braces itself for a recession. And the big question is whether this pain will be reminiscent of what was felt in past downturns.

Some economists have started to warn that the current down-cycle may well turn out to be worse than the Asian financial crisis in 1998, during which the G-7 economies were still holding up well.

'This time around, we may find that there is no safety in any region because the whole world is in a slower growth trajectory,' says CIMB-GK regional economist Song Seng Wun. 'Global investment and global consumption will be adversely affected. So where can Singapore hide?'

An International Monetary Fund (IMF) study of 113 episodes of financial stress in 17 advanced economies over the past 30 years found that downturns preceded by financial turmoil tend to be more severe and protracted.

'In particular, slowdowns or recessions preceded by bank-related stress tend to involve two to three times greater cumulative output losses and tend to endure two to four times as long,' the IMF said in its semi-annual World Economic Outlook.

Taking the onset of the sub-prime crisis last July as a gauge, OCBC economist Selena Ling says she expects a recovery only in 2010. Most economists are expecting Singapore to face at least three quarters of negative year-on-year growth in 2009.

'I wouldn't rule out the possibility that the current downturn may be as painful as the Asian financial crisis, simply because the current recession story is a global one, rather than just a regional one, and the market attention has shifted from the OECD economies to emerging market risks, including Asia,' Ms Ling says.

Pain is already spreading on the corporate front through tight credit and higher costs of borrowing, eroding margins and curtailing capital spending.

Many companies here have strong balance sheets but their cashflows have become an issue because financial institutions remain skittish about lending, Mr Song notes.

Some analysts are even expecting negative earnings growth for 2008 and 2009. The knock-on effect is that wage growth will slow further, denting consumer spending and hurting the real economy.

Although the job market is still enjoying some buffer at this point from the pipeline of projects such as the integrated resorts, Singaporeans will feel the pinch from plunging stock prices, asset price deflation and slower wage growth.

During the Asian financial crisis in 1998, total wages for all employees here saw a rare dip of 0.4 per cent while private consumption spending contracted 2 per cent. Past recessions have also saw private home prices slipping, with the worst fall of 34 per cent year-on-year during the Asian financial crisis, based on Urban Redevelopment Authority data.

'With the softening of the labour market and wages, consumer sentiment is likely to weaken in the coming quarters. Consumer spending is likely to slow dramatically,' warns Ms Ling.

She is expecting private consumption, which grew 10.5 per cent in 2007, to ease to 3.3 per cent growth in 2008 and 1.5 per cent in 2009.

Higher refinancing costs and declining home values are also putting home owners at risk of negative equity when the value of their property is less than the loan taken to finance it - a plight that home owners landed in the years after the Asian crisis.

Economists reckon that the impact on Singapore this time will depend on the severity of slowdown in other Asian countries like China and India, and the policy responses from governments to assuage the downturn.

While Singapore has diversified its economic base since the Asian financial crisis, its export-oriented nature means that the impact of external problems will remain significant, given that trade revenue is still about 2.5 times its GDP.

'While diversifying the economy is well and good, it does not solve the underlying problem. I think we can never escape the fact that Singapore is a very open economy and it is essentially a parameter of global growth,' says Citi economist Kit Wei Zheng. 'The problems of the global economy, as far as GDP growth numbers are concerned, are probably going to be amplified.'
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Re: Asia - Economic Data & News

Postby millionairemind » Thu Oct 30, 2008 7:50 am

China, Korea face housing market bust
Analysts say both countries have to take more steps to spur demand


(HONG KONG/SEOUL) China and South Korea have moved to prop up their frazzled housing markets but probably need to do much more to avoid major price slides that could ruin developers, damage banks and threaten the region's economies.

A share price collapse this week for Chinese property developers such as Guangzhou R&F and China Overseas Land suggests that many investors believe a housing market bust is on the cards, despite a policy U-turn by Beijing.

'Investors might just be throwing in the towel,' UBS analyst Eric Wong said of the sharp drop, which saw some stocks lose as much as 35 per cent of their value over Monday and Tuesday. The Chinese government, fearing a price bubble, was in market cooling mode only a year ago, squeezing developers with a clampdown on loans and hatching moves to stamp out speculation.

New home prices then slumped by up to 40 per cent in the southern cities of Guanzhou and Shenzhen as sales dried up, and property firms began slashing prices across the country to keep cash flowing in.

The outlook grew even dimmer as the global credit crisis began to buffet Asia and batter its financial markets, stalling the region's once-roaring economies.

So last week Beijing unveiled cuts in taxes, mortgages and down payments on homes in an effort to breathe life into a property industry that accounts for about 10 per cent of gross domestic product (GDP) in the world's fourth-largest economy. But the country's biggest developer, China Vanke Co, reported on Tuesday a 13 per cent decline in net profit and a nearly 30 per cent drop in sales volume, in another reminder of how deep-seated the problems are.

If the housing market fails to perk up, analysts say policy makers will probably resort to macro-economic measures to spur demand, such as cutting taxes and interest rates.

'The usual monetary cocktail is a blunt instrument but it's longer lasting,' said UBS's Mr Wong, adding that Beijing might also raise export subsidies and hike pay at state companies.

On the property side, the government could reel back on its measures to dissuade people from buying apartments as investments and tell banks to start lending to developers again, Mr Wong said.

In South Korea, where around half the country's personal wealth is tied up in property, the government pledged five trillion won (S$5.3 billion) last week to buy unsold homes and land from developers to prevent mass bankruptcies in the industry.

An interest rate cut of 75 basis points followed on Monday as policy makers tried to keep the global financial storm at bay.

The steps are a reaction to slowing economic growth and a steep climb in the number of unsold new homes on the market, which rose 43 per cent to a record 160,595 units in July from the end of 2007, according to government data.

Just as in China, the government had a hand in slowing the market in early 2007, tightening restrictions on mortgages and buying second homes.

Analysts believe freeing up finance for homebuyers is the answer, not just taking homes off the market. Apartment prices in the most expensive districts in Seoul and in satellite towns have fallen up to 20 per cent from their peaks in 2006.

'The measures came too late and are too weak,' Daiwa Institute of Research analyst Hyo Yim said of the government's action to shore up the property market.

The government should loosen rules on mortgage lending and cut back taxes on owners of two or more homes, Mr Yim said.

Mortgage debt in South Korea is still only a quarter of GDP, compared to 61 per cent in Australia, and 105 per cent in the United States, according to CLSA. In China, home loans equal only 12 per cent of GDP.

'The government cracked down on so-called speculative buyers, but people won't buy homes if they don't expect prices to rise,' said Mr Yim, adding that the housing market would probably not recover before 2010.

Many of South Korea's 12,000 builders face a cash crunch as credit dries up and home sales slow, with 88 firms defaulting in the first nine months of 2008, up 17 per cent from a year earlier.

Even top developers are not immune to such worries, with shares in GS Construction, Hyundai Development and Samsung Engineering tumbling between 37 and 50 per cent in the last month.

But some analysts are suggesting that South Korean construction stocks may have bottomed thanks to the government's actions, with valuations at historical lows and at a 30 per cent discount in price/earnings terms to the overall stock market. BNP Paribas analyst Jae Rhee has a 12-month target stock price for Hyundai Development that is double its current price. And the potential upside for GS Construction and Samsung Engineering is about 70 per cent, he wrote in a report last week.

Chinese developers are now trading at near 70 per cent discounts to net asset value, and at 7.4 times forecast 2008 earnings, according to Citigroup analyst Oscar Choi, who believes the stocks have been sold off 'indiscriminately'.

And Beijing will do all it can to stop a property market crash, said CLSA analyst Nicole Wong, who has a buy rating on New World China Land and Agile Property.

'Policy is very supportive; basically they're underwriting a put option on market,' she said. 'For sure the government will take further steps if the downward spiral doesn't stop.' - Reuters
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

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Re: Asia - Economic Data & News

Postby millionairemind » Fri Oct 31, 2008 8:06 am

Published October 31, 2008

Bad currency bets piling up for Asian firms
Derivative products leave them exposed to rapid surges in US$ and the yen


(HONG KONG) The extreme market volatility is snaring Asian companies caught on the wrong side of currency bets, highlighting what some say is a reluctance or inability of firms to properly protect themselves against such swings.

Companies across Asia have signed up for derivative products that have left them exposed to rapid surges in the US dollar and the yen, or a plunge in commodity prices and currencies linked to them. Damage from foreign exchange losses has piled higher at companies in South Korea and India. Commodity derivatives are also likely to claim more casualties.

Chinese companies last week announced hits from forex exposure, the biggest one coming from Beijing-backed conglomerate Citic Pacific which reported nearly US$2 billion of potential losses from unauthorised foreign exchange bets related to the Australian dollar.

Many Hong Kong companies also signed up for derivatives without proper hedging, according to another investment banking source. Whether financial officers failed to fully understand the contracts or whether they were knowingly speculating in an effort to maximise their profits is not yet clear.

What does seem clear is that few executives predicted how quickly the bets could go wrong, how much money they stood to lose, and how poorly defended they were against such a downfall.

'Even if you understand the product, you've got to make certain that you have the solid risk management structure: the people, the system and, most importantly, the reporting,' said Tom James, a UK-based energy risk management consultant and an author on hedging who has advised banks and trading companies for 20 years.

The surge in the yen has been identified as exposing a number of Japanese firms to potentially large derivative losses. Hefty falls in commodity prices from palm oil to copper and oil may be possible minefields for planters, miners and airlines.

Market sensitivity to the issue has grown since Citic Pacific's announcement and even speculation of currency exposure has hit shares of other companies in the region. Hong Kong conglomerate Hutchison Whampoa said last week that it does not use any leveraged or structured foreign exchange products, after shares fell on concerns about its forex exposure.

Shares in Malaysian planter IOI Corp dived 20 per cent in one session last week on market talk about its exposure to big swings in the US dollar. In response, the company said it does not speculate on foreign currency moves.

Among the biggest currency decliners is the Korean won, which has fallen by a third against the US dollar this year. The drop has hammered small to medium-sized Korean companies that took part in common 'knock in, knock out' (KIKO) contracts. The contracts, popular among exporters, allow companies to sell US dollars with a fixed won-dollar rate if the won moves within a certain range.

If the won falls below the range, firms have to sell the dollar at a loss below the market's won-dollar rate.

Earlier this year, several Indian companies took banks to court over foreign exchange derivatives that went sour. The problem continues though, as exemplified by software services firm Hexaware Technologies. Last week it saw a 57 per cent drop in net quarterly profit from losses relating to foreign exchange hedges. -- Reuters
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

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Re: Asia - Economic Data & News

Postby millionairemind » Sun Nov 02, 2008 12:41 pm

ECONOMIC VIEW
Fears of another Asian financial crisis increase

By William Pesek Bloomberg NewsPublished: November 2, 2008

It used to be that we searched for economic icebergs in Asia. Now we are on the lookout for Icelands.

Last month, Iceland became the first developed economy to seek aid from the International Monetary Fund since 1976. The country needed a $2.1 billion bailout after investors realized it wasn't running an economy, but a hedge fund.

While Ukraine, Belarus, Hungary and Pakistan are also lined up at the fund's door, Iceland's woes are getting special attention. The thought that a Western European economy that once had an AA credit rating could implode is bringing back uncomfortable memories about Asia's crisis just over a decade ago.

The question zooming around markets is this: If the worst-case outlook plays out and the crisis continues, could Asia experience another 1997? Equally important, will investors know it when they see it?

Analysts like Mark Matthews of Merrill Lynch advise keeping an eye on banks. "Bank shares are the canary in the coal mine," he said.

Fears of another Asian financial crisis increaseHe pointed out that in 1997, shares of banks underperformed in Indonesia, South Korea and Thailand before all three nations asked for IMF bailouts. More recently, drops in banking stocks also preceded a broader realization of troubles in economies like Iceland and Hungary.

So if an Asian economy is on the cusp of an Iceland-like emergency, bank shares are the place to look. And here's the good news: The industry is holding its own. In the past 12 months, banking shares have outperformed the broader markets by 23 percent, Matthews said.

Banks in Asia had only small amounts of the toxic debt now hurting their U.S. and European peers. In general, Asian banks are reasonably liquid and well capitalized. Nonperforming loans may rise as global growth slows, yet the most likely outlook isn't for a 1997-style crisis.

South Korea may be an exception. Matthews said the outperformance of Korean banking shares in the past 12 months has been slight, "and more recently they have begun underperforming."

Asia is anything but immune to this crisis. The cost of insuring emerging-market debt has soared over the past month, as investors fear that a deep U.S. recession will weigh on their export-dependent economies. Slowing growth in Europe, Japan and China means Asia might soon find itself with fewer buyers of its products.

There also are problems today that were not present 10 years ago. The Asian crisis was an emerging-market phenomenon, leaving larger, developed nations less affected. The current one is moving in the opposite direction, from the United States and Western Europe, and is not being contained to any one region. As the turmoil spreads, all economies and markets will feel the pain.

The U.S. Federal Reserve's decision to provide $30 billion each to the central banks of Brazil, South Korea, Mexico and Singapore shows just how universal this crisis is. Paul Donovan, the deputy head of global economics at UBS, wrote in a report to clients this past week that the Fed's decision to expand efforts to unfreeze credit to emerging nations was even more significant than its official interest-rate cut.

The trouble is, the United States still may be entering a Japan-like period of stagnation. In cutting short-term rates to 1 percent this past week, Ben Bernanke, the Fed chairman, may have nudged the United States closer to the experience of Japan.

The United States also is borrowing money so fast that it makes Ronald Reagan's administration seem downright debt-averse. President George W. Bush inherited a surplus when he took office, yet his policies have resulted in deficits and added $1.7 trillion to the national debt.

Financing from nations like China allows the U.S. government, and its citizens, to live beyond its means. Yet the stability of China, the world's largest holder of foreign currency, is becoming less certain. On Oct. 29, the country's central bank reduced its benchmark one-year lending rate to 6.66 percent from 6.93 percent, and it may keep lowering rates as the global crisis drags down its exports and industrial production.

Developing Asia has its own vulnerabilities. Growth rates are not the problem, with 7.9 percent in India, 6.4 percent in Indonesia, 6.3 percent in Malaysia, 4.6 percent in the Philippines, 4.3 percent in Taiwan and 3.9 percent in South Korea. Yet economies do hit icebergs, and things will cool if U.S. companies start laying off even more employees.

The odds don't favor the next hedge-fund economy turning up in Asia. With the exception of Japan, Asian central banks generally have ample room to cut rates, the ratios of debt to GDP allow for latitude on tax policies; and large currency reserves offer a cushion. Asia is a very different place than it was in 1997.

If the global turmoil worsens, though, Asia won't get off easily. But if the region is harboring an Iceland, banking stocks will provide an advance warning.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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