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Market Q&A: Taiwan Up but the Rest of Asia Fizzles
With Scott Blanchard, director of Asian sales trading, ABN AMRO
Web posted at 11 p.m. Hong Kong time, 11 a.m. EDT, Tuesday, Aug. 31, 1999
There is a lot of red on my indices screen today. Everyone's attributing it to yesterday's U.S. data that indicated home sales are sky-high and the U.S. could probably take another rate hike. But more on that later--what's this aberration in black? Taiwan was up 1.1%!
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MARKET Q&A
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ALSO IN TIME
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Taiwan does stick out as a sort of gem in the region. Its only problem is the mainland, and right now you've got the Jiang-Clinton summit coming up [at APEC in New Zealand]. Certainly with the way the Republicans are going on about the China threat--and with the way things went when Zhu Rongji was last in the U.S.--the Chinese really can't afford, for domestic stability reasons, for Jiang to be snubbed by Clinton. They're going to have to keep a pretty even keel.
Clinton's only foreign policy that has been in the least a success has been détente with China, and this summit is an invitation to come back to work on WTO--which the Chinese desperately need. Because if they don't have a seat at the table, if they're not ratified by November, then they're not going to have a seat for the services round. And when it comes to services they really need to be there, otherwise, I think China could become a real bear.
The Iowa straw poll spotlighted a lot of Republicans saying they're going to make an issue out of it if China takes action against Taiwan, so there's a lot of pressure on the Chinese.
In other words, the political situation doesn't have the Taiwanese too nervous now, despite the fact that Lee's "two states" formula is now in writing?
Right. And Taiwan is attractive. They make things people want to buy, their industries are things that people realize are experiencing a secular upturn--steel, for one, and petrochemicals. And Taiwan is strong now in electronic components. On top of that you've got healthy money supply, and they've been very proactive about reforming the banks. For instance, they're talking about letting foreigners come in and actually own banks. Basically it's a stable nation built on a stable financial system, and if you take as the only variable the China-Taiwan relationship you've got a pretty stable market right now. And if you look at the upcoming elections, you realize that, as in the States, you've got a bunch of moderates running for president. As Lee Teng-hui has turned up his independence rhetoric, the DPP has been turning it down a notch.
All right, let's move to Korea, where we've just got news that beleaguered behemoth Daewoo is going to stop the practice of cross-unit financing. Today they didn't do too badly, just down half a percent.
In Korea, I suspect that the buying at the end of the day came from ITCs (investor trust corporations) using money borrowed from the government. They've got an election coming up in March, and, for better or worse, in Asia they tend to measure the current health of the economy by the stock market, and so the government feels that through intervening they can manipulate that.
But Daewoo is a problem they really don't know how to deal with, more than the government will have you believe, and they're just starting to work out now. The program that they're on now, they're putting them under workout on a program that will allow the banks to overstate their earnings; they're effectively insolvent as of now. But we are seeing liquidity dry up in this market. Money has obviously disappeared; it's just not there any longer in effect because of Daewoo. Daewoo and its subsidiaries made up 5% of the GDP, and 35% of the corporate bond market is in Daewoo's debt.
What happened in Hong Kong? The Hang Seng was down about 1.5%--effectively losing almost all it had gained yesterday after those good GDP figures. Was that a delayed reaction to the U.S. interest rate hike?
Well, most of that happened in the last 20 minutes of the trading day, and it was very much futures-driven. A U.S. broker went into the market with a lot of futures to sell and not a particularly liquid market. It would have been a lot more so if it hadn't been for Greenspan and the prospect of another interest rate hike in the States.
But Hong Kong felt all day like it wanted to move higher. It was just very, very light volume all day. I was surprised, what with London back from a holiday yesterday, but remember, if there is a correction on Wall Street the first thing to go in big directions, by and large, would be your international money. Retail investors are still not incredibly comfortable with the concept.
Otherwise Hong Kong looks good. There were some retail figures out last week that looked good, and good figures from China on petrochemical earnings and output that all seems to indicate China may have found a bottom to the deflationary spiral it's been on. And if China's getting better, you've gotta buy Hong Kong. Historically when China's got extra cash it flows out of China and goes into Hong Kong. And now that the government's put a tax on interest income in China--to drag money out of the banks--you've got to think ultimately they're going to put it in Hong Kong. It's a win-win situation here.
Interviewed by Maureen Tkacik/AsiaNow
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