While the eyes of the world have been focused on the spectacular rise and fall of the NASDAQ over the past 12 months, Asian stocks have had an even more spectacular ride, declining to levels not seen since the depths of the 1997-98 Asian financial crisis.
The Asian economic crisis began in July 1997 with the devaluation of Thailand’s currency, a move that was later followed by major devaluations in Indonesia, the Philippines, Malaysia, and South Korea. Economic and financial chaos resulted from these countries’ abandonment of sound currency policies, and Asian GDP rates declined by as much as 13% by the apex of the crisis in1998.
Indeed, there were some investors who followed Sir John Templeton’s dictum to buy when there’s “blood on the streets”, and those that bought into markets like Indonesia, Thailand, Korea, and the Philippines at the time of maximum pessimism (around September 1998,) would have achieved returns ranging from approximately 200% to 300% in dollar terms by the summer of 1999.
By late last year, analysts and bureaucrats were celebrating their success in “rescuing” Asia. GDP growth in the region in 1999 was vigorous, ranging from 4.2% in Thailand to as high as 8.8% in Korea. Economies were preparing to take advantage of global growth in electronics and telecommunications industries, placing companies in those sectors at the forefront of the Asian stock market recovery
But for all the positive economic statistics, there was always a bit of unease throughout the Asian equity markets. Financial institutions, especially those in Thailand, Korea, and Indonesia, were hobbled by bad debts and loan losses, and seemed unable to function as the financiers of their economies. The result was that public and private restructuring proceeded at a much slower pace than initially proposed, suggesting that leaders may have taken rebounding stock prices as a sign that not much needed fixing. Further, political instability has shaken most Asian countries, reflecting the severe dislocations of decades-long politico-economic power structures.
Right now, there is a severe contradiction in the generally stated beliefs about Asian markets, and the expectations implied by current market levels. Analysts are predicting overall growth in profits for companies in most Asian stock markets.
Bureaucrats at the IMF are forecasting regional 2001 economic growth to be a healthy 4.5%-6.5%. The financial media have already handed out congratulations to those deemed responsible for “saving Asia”, and have essentially closed the case.
Yet the Asian stock markets are saying “all is not well.”
From 12/31/99 to 10/25/00 the Indonesian market has declined 50.9% in dollar terms, Thailand – 51.7%, Philippines – 51%, and South Korea – 47%. Indonesia and Thailand are not far from their 1998 lows, and the Philippines’ market has actually fallen below its low point of 1998.
The poor performance of Asian markets is perhaps as unnerving for Asian equities investors as were the plunges of 1997-98. At least at that time, they could point to the financial chaos and say “there’s blood in the streets!” Now, they can only keep reciting the mantra that “the economy is improving, profits are growing” while wishing their Asian stocks would stop declining. If the Asian economies do indeed continue to improve, the political environment begins to stabilize, and positive restructuring and reform is advanced, then global investors may in retrospect wish they had bought in Fall 2000 when “blood in the streets” prices reappeared.
Note: Investments in emerging markets such as China represent ABOVE average risk and volatility.
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