Asian markets could be over the worst

Cautious optimism is returning and even George Soros expects a rebound

"The so called crisis is more or less over," said Hong Kong's Financial Secretary Sir Donald Tsang, before jetting off for a visit to Australia this weekend.

In recent weeks East Asian stock markets have tumbled and currencies have been under such severe pressure that governments have been forced to accept devaluations which in some cases wiped billions of dollars off the value of local currencies.

Although last week saw continuing declines in stock prices as Asian currencies hit new lows, a cautious mood of optimism was creeping back into the markets by the end of the week.

George Soros, the American based fund manager, who is alleged to have moved heavily into Asian markets and emerged as public enemy number one, said in an interview yesterday that he was expecting a rebound in these markets.

Interviewed by Hong Kong's South China Morning Post, Mr Soros said that the pendulum in regional currency markets had swung too far and he expected to see irregular trading fade soon.

Those remarks are unlikely to placate regional leaders, who accuse Mr Soros and a clutch of American hedge fund managers of wreaking havoc in markets which they say are basically sound, aside from their vulnerability to international speculators. They maintain that the situation in East Asia is nothing like that which prevailed in Mexico during the 1995 Peso crisis, which was based on genuine economic instability.

Malaysia's Prime Minister, Mahathir Mohamad, has been the most outspoken critic of the speculator's activities. Over the weekend he reinforced his criticism in typically robust style. "All these countries have spent 40 years trying to build up their economy," he said, "and a moron like Soros comes along with a lot of money to speculate and ruin things."

There was some suggestion that Dr Mahathir and Mr Soros would meet next month in Hong Kong at the IMF/World Bank conference, but the Malaysian Prime Minister said firmly that he had no wish to meet the American financier.

Other regional leaders, in less forceful terms, have expressed alarm at their economies being held to ransom by the vagaries of international speculation. This indignation has probably been more vivid in Singapore than elsewhere. In the middle of this month, when the currency turmoil was at its height, the Singapore dollar lost almost 8 per cent of its value against the US dollar.

Compared to the losses in neighbouring Thailand, Indonesia and Malaysia, this fall was modest but Singaporeans are used to seeing their currency appreciate in value while their neighbours flounder. The Singapore dollar has been the strongest currency in the region and although it is now gaining ground again it appears to have fallen for no other reason than Singapore's location at the heart of a region where other currencies were tumbling.

Hong Kong, with $64bn dollars in foreign reserves at its disposal, making it seventh in the world league of foreign reserve holdings and second in the world on a per capita basis, also found its currency under pressure. However, a bout of highly aggressive market activity by the Hong Kong Monetary Authority ensured that the local currency barely budged from its fixed link with the US dollar, making it the only Asian currency not to have devalued in the past few weeks. Even Mr Soros concluded that speculation against the Hong Kong dollar was a mug's game.

Yet there has to be a reason why international speculators suddenly seized on East Asian currencies as a vulnerable point for attack. The starting point was Thailand. In the decade from 1985 to 1995 it enjoyed the highest growth rate in the world. Export-led growth and heavy foreign investment appeared to be offering a secure future for the Thai economy.

Below the surface was an extraordinary malaise of poor regulation, rampant insider trading, false valuations and red-hot speculative activity that inevitably gave way to uncontrollable overheating. In the fallout 58 financial institutions collapsed, the stock market went into a spin dive and the Thai currency saw more than 20 per cent wiped off its international value.

The government has been forced to go cap in hand to the International Monetary Fund for a $16.7bn rescue package and submit itself to a typical IMF-style clutch of stringent economic measures.

The irony of the current situation is that Asian stock and currency prices have fallen to such a degree that the stage is set for speculators to return in search of bargains.