Turning point in Far East?

Sark is such a wonderful island. The tranquil atmosphere delivers such a restful frame of mind that you become totally detached from the world. It was not surprising when, after a mere five days, I had forgotten that there had ever been an Asian crisis. Until President Suharto resigned, of course. But does this change at the top really make any difference?

Incoming President Habibie has a reputation for being an economic wild card. In the past he has been responsible for a rather erratic interest- rate policy and for seeking to turn the commodity-based economy of the third most populous nation on earth into something rather more high-tech - not so far successfully achieved. He was also vice-president under Suharto.

It will take a while to gain the measure of the new man, but much will depend on how much he is prepared to co-operate with the IMF. They should really be in the driving seat now, but he may have his own ideas about how Indonesians should manage their way out of their problems. And, of course, we do not know if the civil unrest will now moderate.

It all prompted me to reconsider these markets on the other side of the world. We are approaching the first anniversary of the start of the Asian crisis, with every indication that the story will run and run. Domestic demand in the region remains flat, but this is helping the balance of payments position of these countries. At some stage the major international banks - who arguably were responsible for the collapse when they collectively withdrew their support - will feel more confident and return to the region. Certainly, talking to Alan Butler-Henderson, who used to be ING Baring's man in the Far East, before becoming an independent commentator on the region, thinks that markets like Thailand and Malaysia have fallen to levels that discount all current problems. I hope he is right.

There is some sign that big business is beginning to dip a toe in the water, even if international money managers are still steering well clear. South-east Asia is a long way from being written off.

Of course, Japan remains a focal point. In Mr Butler-Henderson's view, bonds in Tokyo are over-bought and equities over-sold. Interestingly, he thinks that any correction might have implications for other equity markets. When the Japanese regain their confidence, they are likely to bring money back onshore.

What has been interesting about this whole sorry affair is how little impact it has had on the developed stock markets. In practice, the value of share markets in South-east Asia are of relatively little significance, if you exclude Japan. It may still take some time for the situation to fully unwind, but the long-term advantages - large populations, aspiring consumers, a strong work ethic - remain intact.

So far as Indonesia is concerned, they were a lot further behind many parts of the region and the considerable disruption that the events of the past few weeks will have delivered to the economy will not make recovery any easier. It will be a long time before we see them back on an upward path, but maybe the worst is behind them. It looks time to give the region more than just a cursory glance. But widows and orphans should still stay clear.

Brian Tora is chairman of the Greig Middleton Investment Strategy Committee.

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