Magazine article Business Asia

Stock Rally May Hinder Reform

Magazine article Business Asia

Stock Rally May Hinder Reform

Article excerpt

The good news is that Asia's stock markets are rallying. The bad news is that some nations believe they can go back to their old ways

Troubled Asian economies must resist the temptation to use Asia's stocks rally as an excuse to delay reform, and instead exploit improved liquidity conditions to speed up painful but necessary change, analysts say.

Signs are mounting that some Asian economies have become increasingly complacent about reform following easier liquidity conditions following a string of US and Asian rate cuts, which spurred regional markets into a widely distrusted rally.

Asian stocks have soared by at least 30 per cent since the US Federal Reserve started slashing rates in September.

European nations followed suit recently, chopping rates in unison to accommodate next month's advent of the euro.

"This creates a temptation to avoid reform," said Mr Anand Aithal, regional strategist at Goldman Sachs in Singapore. "If access to capital is too easy, then they won't reform."

There are already signs this has happened, according to Mr Geoffrey Barker, chief economist at Dresdner Kleinwort Benson Asia.

Thailand, where the stock market has rallied about 20 per cent this year in US dollar terms, is struggling to get parliamentary approval for bankruptcy laws essential for a vast banking sector clean-up.

Meanwhile, Thailand's finance company recapitalisation program has been postponed for an indefinite period.

In South Korea, where stocks are up nearly 60 per cent in US dollar terms on the year, few steps have been taken to close excess capacity and force through bankruptcies and job losses. …

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