It says that among the developed markets, all among the 22 included in the MSCI World Index were down. Among the worst performers in the developed markets in October were Hong Kong
(-29.1 per cent), Malayasia (-21.1 per cent) and Singapore (-17.3 per cent). MSCI says that Malayasia continued to decline on depressed investor sentiment over the local economy and currency. The Malayasian government's recent budget for 1998 failed to instill confidence that tough measures would be taken to restore the economic stability. In Singapore, the investors sold shares mostly on regional weakness, opines MSCI.
In emerging markets, Turkey was the best performer with a gain of 5.7 per cent. The recently launched MSCI Morocco index rose by 2.6 per cent and rounded out the emerging market gainers for the month. Out of the Latin American markets, Columbia was surprisingly resilient with a fall of only 1 per cent compared to other markets in the region, all of which declined by 10 per cent or lower.
In October, the bottom performing emerging markets were Thailand with a fall of 34.1 per cent, Korea with 31.3 per cent and Brazil with 24.2 per cent. The list of problems in Thailand continued to grow as the finance minister resigned as a result of cabinet reshuffle which caused a 40 per cent turnover in the cabinet personnel, the further fall of the baht and downgrading of long term foreign currency rating by Standard and Poor's by two notches to BBB. The Korean currency also came under pressure. The downturn in Latin America was most severe in Brazil, due to its large budgetary and current account deficits.
Diagnosis: Bahtulism
The currency crisis in south east Asia can be perceived to be a disease. That is what an article in the November issue of Worth magazine by Todd G Buchholz says. Buchholz calls the disease as 'Bahtulism', which has spread rapidly throughout the region like an epidemic. By mid-September, the baht had fallen by 28 per cent against the dollar. Other currencies like the Philippine peso lost 22 per cent, the Indonesian rupiah was down 20 per cent and the Malayasian ringitt dropped 16 per cent against the dollar.
Due to Bahtulism, the entire region now faces near-recession conditions, according to Buchholz. This was triggered by the Thai Government's "Unwillingness to cleanse its trade deficit and inflation with higher interest rates," says Buchholz. He also says that according to a survey by Salomon Brothers, Thailand will have no GDP growth in 1998 and the growth rates in Indonesia, Malayasia and the Philippines are expected to be half that of 1996.
He then goes on to suggest that the investors outside the region must track the disease for its global effects. As an example of the global effect, he cites the case of Japan. As more than 40 per cent of Japan's exports are dependent on a healthy Asia, the outbreak of Bahtulism could not have come at a worse time. The Nikkei had fallen by 2,500 points from July to mid-September. To make matters worse, the Japanese banks hold about one-thirds of the debts issued by the Southeast Asian companies which have now gone bust. Due to this bleak scenario, the Japanese interest rates have collapsed to the extent of under two per cent for 10 year bonds.
But in Buchholz's opinion, Wall Street will not be adversely affected by the Bahtulism bug. It may as well help the US money to be sucked back from the Asian market. Also, a slowdown in exports to Asia will prevent an interest rate hike. His ultimate piece of advice to American investors is to move out of the stockmarkets and invest in properties in southeast Asia, taking advantage of the strong dollar.
