Asian Markets Lead Worldwide Rally

Monday’s dramatic gains in several Asian markets, on the first day of trading following a five-day break for the Lunar New Year, extend a rally that began Jan. 13 and reflect a growing belief that the region’s economic reforms have some credibility.

Hong Kong’s Hang Seng stock index rocketed 1,326.2 points, or 14.3%, to 10,578.60 on Monday. It was the second-biggest point gain ever. The Indonesian market’s main index soared 14% to 554.11, and Thailand’s main index zoomed 12%.

At midday today, most Asian markets were higher again, but modestly so, as investors paused for breath. Still, many of the region’s battered currencies continued to gain, after strengthening sharply Monday.

Good news in recent weeks has come from Japan, where the government has pledged $236 billion to bail out the country’s banks--including almost $24 billion earmarked for loans to corporations so they may avoid a credit crunch.

And the ouster last week of the powerful minister of finance after charges of bribery on his watch sent a signal that Japan’s government is bent on an expansionary economic policy--and may be rooting out historically corrupt ties between government and big corporations.

In Southeast Asia, Indonesia announced reforms last week designed to keep companies functioning while their debts are rescheduled. And in South Korea, global bankers finally agreed to roll over short-term loans to companies into longer-term government bonds.

Thailand, meanwhile, in what was taken as a sign of strength, abandoned what remained of its currency exchange controls. The central bank in Bangkok said Friday as it ended the currency controls: “The situation has changed. We have solved many of our problems.� And global investors guardedly agreed.

Encouraged by those and other indicators, European and U.S. pension and mutual fund investors put money back into Asia’s stock markets Monday.

To be sure, there was caution. “The markets usually rally on the first day after [the Lunar] New Year,� said a Hong Kong trader who doubted that gains would be sustainable.

But signs that reforms will go forward mean investors can concentrate on the underlying strengths and weaknesses of Asia’s various economies, and not merely on daily market fluctuations.

The weaknesses are plentiful, of course, but despite the collapse of recent months, the strengths are real. High personal savings rates in Asia--15% to 20% in Japan, South Korea, Thailand and other countries--offer the economies a source of stability in these times of transition.

One reason for the high savings rates is that Asia’s economies are relatively undeveloped domestically after growing for decades by emphasizing exports. Now that emphasis is changing. Efforts will be made to boost domestic economies.

In Japan, an expansion of public works will take a new form, of encouraging investment in telecommunications and the installation of fiber-optic cables, says Alexander Kinmont of Morgan Stanley.

That could be significant. The engine driving the U.S. economy in recent years has been investments in computer and communications technology, which have served to make U.S. companies globally efficient. The pattern will now be mirrored in Japan and South Korea.

Hong Kong’s volatile Hang Seng index rebounded 14.3% on Monday partly on optimism that China’s economy--undergoing its own more gradual reforms--would continue growing at roughly 6% this year, down sharply from recent growth rates but not a disastrous slowdown.

A favored form of investment in China is to take equity in toll roads, explains Michael Sze, director of the Hong Kong Trade Development Council. This gives Chinese cities and regions funds to build new roads while giving Hong Kong firms the right to manage roads and collect tolls and then to reinvest the cash flow in retail stores and other service businesses.

Indonesia has attracted investor confidence since last week, when the government pledged to guarantee bank deposits for its own people. That prevented a collapse of the banking system while negotiators work out terms on foreign debt.

Indonesian guarantees of bank loans have credibility because the country is a major producer of oil and natural gas, and it exports $1 billion worth each month. Its liquefied natural gas fuels electric power plants in Japan.

A few days of stock market gains do not mean that Asia’s crisis is over or that the way ahead won’t be fraught with setbacks. But the markets’ behavior does acknowledge that Asia’s government and business have changed their attitudes toward reform and rebuilding. A new phase has begun.

* STREET STRATEGIES: Closed-end funds may be a way to take advantage of Asia’s rebounding markets, Walter Hamilton writes. D4

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Asia’s Sudden Rebound

Most Asian stock markets have surged over the last three weeks as the region’s financial crisis has appeared to stabilize. But major stock indexes remain well below their 1997 highs.

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1997 Monday Change since Market high Jan. 12 close Jan. 12 Thailand 858.97 339.17 554.75 +63.6% Indonesia 740.83 350.24 554.11 58.2 Singapore 2,271.88 1,073.47 1,432.99 33.5 Hong Kong 16,673.30 8,121.06 10,578.6 30.3 Malaysia 1,271.57 477.57 569.51 19.3 South Korea 792.29 456.20 543.68 19.2 Japan 20,681.10 14,664.44 16,776.82 14.4 Taiwan 10,116.80 7,375.14 8,405.11 14.0

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Source: Bloomberg News