TC BUSINESS What'
happening in world financial markets?
To get a
clearer picture, Kenji Steven recently spoke to Michael Reed, of
Templeton Franklin Investment Services (Asia) Ltd.
What happened in Malaysia?
After the shock of Russia's loan default and currency devaluation, Malaysia took its shot
at investor confidence by imposing strict currency controls and restricting the movement
of international investment within its borders. After purging his closest rival, Prime
Minister Mahathir tightened his hold on the nation's financial institutions by fixing the
Ringgit exchange rate at M$3.80 to US$1. The government also restricted trading of
Malaysian securities, announcing that any proceeds must be held in Ringgit for one year
from the sale date. From October 1, 1998, all Ringgit outside Malaysia has been declared
invalid, and Malaysian stocks are not allowed to be sold on any bourse unrecognized by the
Malaysian government. Under the guise of targeting short-term investors and
"speculators," the restrictions have virtually destroyed sentiment towards
Malaysia for serious, long-term investors.
What about Russia?
Last month's fiasco in Russia continued to plague the Eastern Europe markets. After
dismissing his Cabinet, Yeltsin and the State Duma agreed to the nomination of Yevgeny
Primakov as Prime Minister. However, Primakov has found it difficult to assemble a
government due to the departure of key Cabinet members. Deputy Prime Minister Aleksandr
Shokhin resigned shortly after being nominated to the Cabinet, when it appeared likely
that the IMF would balk at giving more money to the "restructured" Russia, while
tax chief Boris Fedorov and Deputy Prime Minister Viktor Khristenko were fired in
frustration over the slow progress of reforms and lack of any meaningful financial plan
for the failing nation.
How about Latin America?
These markets faced a roller-coaster month as euphoric speculation that the IMF and World
Bank would come to aid Brazil sent markets climbing over a two week period. However, the
rise proved too tempting for international investors who took profits and so returned
markets to more sensible levels. The growth seen in July, which was summarily shattered in
August, appears to be returning, which may suggest that, barring any catastrophic event,
recovery may be in sight.
In Japan we focus on the Yen/USD rate; what other currency
pressures may affect us?
Key issues to watch will be the valuation of the Hong Kong Dollar and Chinese Renminbi -
the drop of either would destroy any confidence in Asia.
How is this affecting the US and other large markets?
The recent events found a new victim in September: the financial services industry.
Concern for these institutions stemmed from the failure of Long-Term Capital Management, a
prominent US hedge fund that had borrowed heavily from an extensive array of global
financial institutions. This event was only one symptom, however, of a very broad concern
for credit quality among global investors.
The fundamental conditions in global economies point to a decline in long-term interest
rates. Closer to home, yields on Japanese bonds are now below 1percent but this low level
masks a serious credit problem. Fully-hedged to US dollars, Japanese government bonds
actually yield more than AA-rated US corporate debt. This means that investors rate the
credit-worthiness of major US companies higher than the Japanese government! In Europe,
the global financial crisis is finally beginning to affect expectations for growth in the
year ahead. Industrial and consumer confidence has reached a plateau. The Continent will
be the economic area least affected by the decline in global growth but it will still slow
from the 3percent pace achieved earlier in 1998.
Kenji Steven is a consultant with Stirling Macguire Asset Management
(Japan) Ltd.
To get a
clearer picture, Kenji Steven recently spoke to Michael Reed, of
Templeton Franklin Investment Services (Asia) Ltd. 
What happened in Malaysia?