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Emerging markets turmoil pose problems for U.S. economy

August 29, 1997

NEW YORK (AP) _ Fresh turmoil in Southeast Asian financial markets could pose a threat to the U.S. economy by dampening business deals and trade in the lucrative region, analysts say.

But the two-day tumble in Asian stock markets has yet to trigger heavy selling on Wall Street, and analysts say the upheaval is unlikely to be the ``unforeseen event″ investors fear will halt the bull in his tracks.

Still, the roiling of the Southeast Asian financial markets ``is an important event and something we’re going to watch,″ said Anthony Chan, chief economist at Banc One Investment Advisors Corp. in Columbus, Ohio.

``We keep looking for that shock to occur,″ said Robert Dederick, economic consultant at Northern Trust Co. in Chicago. ``They are certainly being shocked out there.″

For a second day in a row, Asian stock markets plunged Friday, reflecting investors’ continuing anxiety about the stability of some of the area’s currencies and a decline on Wall Street on Thursday, during the night in Asia.

In Hong Kong, the Hang Seng Index, the stock market’s key indicator, skidded 9 percent over two days. The Thai currency, the baht, fell to a record low, and investors bailed out of the stock market. Malaysia’s currency, the ringgit, also sank to a new low, and the stock market fell for a second day.

Stock markets also were down Friday in Japan, Singapore, Indonesia, the Philippines, South Korea, Australia and New Zealand.

Investors’ nervousness could further weaken the region’s economies _ some of which are already struggling with shaky currencies _ which could have a spillover effect on the American economy.

``Those countries have become increasingly important to us as trading partners,″ said Cynthia Latta, senior financial economist at DRI/McGraw-Hill in Lexington, Mass. ``If their economies flop ... they won’t be able to afford our goods.″

U.S. businesses heavily reliant on sales from that region could be hit particularly hard.

The Southeast Asian countries have become impressive buyers of U.S. goods used in fueling their developing economies. ``This has been a very dynamic area and one that has proven to be a good market for us,″ said Dederick.

Singapore bought $8.7 billion worth of American goods _ from heavy equipment to paper and pens _ in the first six months of this year; Thailand purchased $3.6 billion; the Philippines, $3.8 billion; and Malaysia, $5.3 billion, according to the Commerce Department. Total U.S. exports were $340.2 billion.

Some of the countries borrowed heavily from abroad to buy U.S. and other goods and buoy their once high-flying economies, building up hefty debts and trade deficits.

With the recent run up in the U.S. dollar, their economies have been badly pinched. With weakening economies and skittish financial markets, some, including Thailand and the Philippines, have been forced to devalue their currencies.

The strong dollar has made U.S. goods more costly for those countries. But at the same time, it has made their goods cheaper for American buyers.

Some analysts say a slowdown in exports to that region could help ease the robust growth pace of the U.S. economy. The government reported Thursday that the economy expanded at a 3.6 percent clip in the second quarter, raising fears of mild price increases ahead.

``It may be we could use a little cooling off in demand,″ said Dederick.

So far, analysts say the Asian sell off hasn’t been strong enough to send shock waves through Wall Street. Some say, though, it may have caused bumpiness at the opening of the U.S. stock markets and contributed a bit to the recent pullback of the Dow Jones industrial average.

``We are already in the process of a correction right now I believe,″ said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. ``The problems in Southeast Asia are ... a contributing cause to the correction, but I don’t think that is the major cause.″

More troubling for Wall Street, analysts say, would be if Asian central banks and other big investors began to unload their large holdings of U.S. Treasury securities. That could lead to higher U.S. interest rates, which would in turn unsettle U.S. markets. There is, however, no evidence to suggest that is likely to happen, they say.

But American bond markets could also have been helped this week by a flight of Asian capital into the safety of U.S. Treasury securities, analysts say.

Even though prices of Southeast Asian stocks are declining, analysts aren’t advising international investors to snap up foreign shares in those countries.

``With the continued tumble in the Asian equity markets, we remain cautious,″ said Smith Barney analyst Holly Sze in New York. ``A lot of companies’ earnings estimates are being revised downward so we would be extra cautious about putting money in the Asian markets.″

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