Information Note for the
Provisional Legislative Council
Panel on Financial Affairs
Developments in the financial markets in Asia
Purpose
This note provides an update on the latest developments in Asian financial markets.
Performance of Asian economies
2. Subsequent to the floating of the Thai Baht in July 1997, the financial turmoil has swept across the economies in East Asia. From mid-July 1997 to early January 1998, nearly all East Asian currencies (with the exception of the Hong Kong dollar and Renminbi) has experienced sharp depreciation vis-à-vis the US dollar, from 14% (Japan) to 66% (Indonesia). The Korean Won, Indonesian Rupiah, Thai Baht and Malaysian Ringgit have further reached new lows in the second week of January 1998. Interest rates have remained high for most economies and stock markets have been under continued selling pressure (Tables 1 and 2).
3. Indonesia. Under the IMF rescue package (totaling US$38 bn), the government announced the liquidation of 16 weak banks. However, the Rupiah continued to fall in response to rumours concerning the President's health and increasing doubts on the ability of some Indonesian corporations to service their external debt. Even though the government's commitment to carry out economic reforms is strong, the market is concerned that fiscal measures announced in the new budget do not fully meet the requirements in the IMF package.
4. Thailand. A total of US$17.2 bn was committed under the IMF programme. In restructuring the financial sector, the government has closed 56 of the 58 suspended finance companies. Nevertheless, market sentiment remains negative, as a result of which both exchange rate and equity prices have continued to slide.
5. Korea. The failure of 8 out of the top 30 Korean "chaebols", i.e. major industrial groups, has worsened the bad debt problem of the Korean banking system and clouded the investment sentiment. Financial assistance was sought in early December from IMF which committed an unusually large rescue package of US$58 bn. In return, Korea was required to undertake extensive economic and financial sector reforms.
6. Japan. Failure of certain major financial institutions, notably, Hokkaido Takushoku Bank (one of Japan's 20 major banks) and Yamaichi Securities, and the expected adverse impact of the Asian financial turmoil on Japan's economy have led to falls in the stock market and the currency. The market is looking forward to the implementation of a large scale financial liberalization programme in early 1998 to revive the economy.
7. Hong Kong. As the financial turbulence is regional with significant global impact, Hong Kong cannot be immune. Under the linked exchange rate system, the Hong Kong dollar remained stable against the US dollar. Reflecting the Asian risk premium, short term interbank interest rates, in terms of the one-month rate, was around 14% in early January, about 8 percentage points above the US dollar interest rate (compared with the one-month rates of 20% in Singapore and 30% in Indonesia during the same time). In US dollar terms, our stock market has fallen by 33%, as compared with more than 60% for Philippines, Malaysia, Indonesia, Korea and Thailand.
Current Development
8. The Asian financial turmoil is not yet over. The situation in the region especially in Indonesia, Malaysia and Thailand has further deteriorated during the second week of January 1998. Affected by the volatility in the regional currency and securities markets, the Hong Kong dollar experienced some selling pressure and the stock market has also fallen. The Administration and the regulatory organisations remain highly vigilant of market activities and are closely monitoring further developments of the situation which is still evolving.
Financial Services Bureau
12 January 1998
Table 1
Changes in exchange rates, interest rates and stock market performance in regional markets : Mid-1997 to 6 Jan. 1998
|
Market
|
Exchange rates
|
Short-term interest rates
|
Stock Market Performance
|
|
|
|
|
|
Market Indices
|
% Changes | |
|
|
mid-1997
|
6 Jan 98 (change)
|
mid-1997
|
6 Jan 98 (change)
|
mid-1997
|
6 Jan 98
|
in local term
|
in US$ term | |
|
|
Hong Kong
|
7.747
|
7.749
(-0.0%)
|
6.06%
|
10.5%
(+73%)
|
15197
|
10136
|
-33%
|
-33% | |
|
|
Japan
|
114.6
|
133.9
(-14%)
|
0.63%
|
0.97%
(+54%)
|
20602
|
14896
|
-28%
|
-38% |
|
Taiwan
|
27.81
|
33.76
(-18%)
|
10.5%
|
8.25%
(-21%)
|
9030
|
7966
|
-12%
|
-27% |
|
Singapore
|
1.430
|
1.75
(-18%)
|
3.56%
|
8.94%
(+151%)
|
1988
|
1439
|
-28%
|
-41% |
|
Philippines
|
26.38
|
45.2
(-42%)
|
10.97%
|
16.77%
(+53%)
|
2809
|
1821
|
-35%
|
-62% |
|
Malaysia
|
2.525
|
4.33
(-42%)
|
7.35%
|
9.45%
(+29%)
|
1077
|
526
|
-51%
|
-72% |
|
Korea
|
887.9
|
1745
(-49%)
|
12%
|
23.4%
(+95%)
|
745
|
406
|
-46%
|
-72% |
|
Thailand
|
24.7
|
52.3
(-53%)
|
15.81%
|
19.8%
(+25%)
|
527
|
370
|
-30%
|
-67% |
|
Indonesia
|
2432
|
7200
(-66%)
|
14.6%
|
45.2%
(+209%)
|
725
|
402
|
-45%
|
-81% |
Source: IMF, CEIC, Reuters
Notes: the short term interest rates for Korea and the Philippines quoted are Korea Certificates of deposits 91 days middle rate and Philippine Treasury bill 91 days middle rate respectively. Others are 1-month interbank rates.
Table 2
Changes in exchange rates, interest rates and stock market performance in regional markets : Year-end 1996 to 6 Jan. 1998
|
Market
|
Exchange rates
|
Short-term interest rates
|
Stock Market Performance
|
|
|
|
Market Indices
|
% Changes
|
|
end-96
|
6 Jan 98 (change)
|
end-96
|
6 Jan 98 (change)
|
end-96
|
6 Jan 98
|
in local term
|
in US$ term |
|
Hong Kong
|
7.736
|
7.749
(-0.2%)
|
5.38%
|
10.50%
(+95%)
|
13451
|
10136
|
-25%
|
-25% |
|
Japan
|
115.9
|
133.86
(-13%)
|
0.53%
|
0.97%
(+83%)
|
19361
|
14896
|
-23%
|
-33% |
|
Taiwan
|
27.49
|
33.76
(-19%)
|
5.5%
|
8.25%
(+50%)
|
6934
|
7966
|
+15%
|
-6.5% |
|
Singapore
|
1.399
|
1.75
(-20%)
|
3.06%
|
8.94%
(+192%)
|
2217
|
1439
|
-35%
|
-48% |
|
Philippines
|
26.26
|
45.2
(-42%)
|
11.7%
|
16.77%
(+44%)
|
3171
|
1821
|
-43%
|
-67% |
|
Malaysia
|
2.525
|
4.33
(-42%)
|
7.27%
|
9.45%
(+30%)
|
1238
|
526
|
-58%
|
-75% |
|
Korea
|
844.6
|
1745
(-52%)
|
13.6%
|
23.40%
(+72%)
|
651
|
406
|
-38%
|
-70% |
|
Thailand
|
25.65
|
52.25
(-51%)
|
11.5%
|
19.75%
(+72%)
|
832
|
370
|
-56%
|
-78% |
|
Indonesia
|
2361
|
7200
(-67%)
|
10.3%
|
45.16%
(+337%)
|
637
|
402
|
-37%
|
-79% |
Source: IMF, CEIC, Reuters
Notes: the short term interest rates for Korea and the Philippines quoted are Korea Certificates of deposits 91 days middle rate and Philippine Treasury bill 91 days middle rate respectively. Others are 1-month interbank rates.
