Financial markets in Asia have rebounded after massive central bank intervention and moves by the United States authorities to assist troubled financial firms. But as Ron Corben reports from Bangkok, while Asia's economic growth prospects are expected to dim in 2009, analysts expect the financial sector to remain resilient after a decade of reforms.
Asia's financial markets recovered strongly Friday as investors took their cue from U.S. central bank intervention with the pumping of over $200 million into fragile credit markets and government measures to boost share trading volumes.
The Hong Kong and Shanghai indices surged over nine per cent after the Chinese government cut taxes on share purchases and bought shares in state-owned banks.
Japan's Nikkei index gained almost four percent while shares in South Korea leapt over 4.5 percent as investor confidence returned to the markets driven on by a strong U.S. market recovery.
The U.S. government was reported to be preparing to set up a new entity to assist troubled financial firms. Other short term policy measures in Britain and New York tempered heavy selling.
But credit markets remained cautious despite the measures, and moves by central banks in Japan, Australia, Indonesia and India Friday to inject a further $42 billion into credit markets.
The moves by central banks and governments came as international capital markets are seen to be facing the most severe crisis since the Great Depression of the 1930s - triggered by systemic failures in the financial and banking sector in the United States, accompanied by restrictions on international trade.
Financial markets this week have been gripped by panic after major U.S. investment bank Lehman Brothers was forced into bankruptcy, other troubled banks were forced to sell and the U.S. government mounted an $85 billion rescue operation for troubled international insurance house, AIG.
Analysts are expecting a major restructuring of the U.S. financial market in the wake of the crisis triggered by a credit shortage and recession in the U.S. housing market.
Economists are now warning of a sharp downturn in the global economy as financial market uncertainties spill over to the general economy, including Asia.
Director General of the United Nation's Conference on Trade and Development, Supachai Panitchapkadi, this week warned the global downturn will continue into 2009.
Suvojit Banerjee, an economist with the UN's Economic and Social Commission for Asia and the Pacific (UNESCAP) says Asia's export sector, a key driver of most economies, will be hit by a downturn in the European and U.S. economies.
But Banerjee says a downturn will be eased somewhat by the strength in domestic consumption in Asia, with most governments holding substantial foreign exchange reserves. He says the medium term outlook is favorable.
"In the longer term investors are likely to realize that these economies remain very solid and largely robust with decent growth prospects as compared to developed country markets so there will be a return of interest to the region," he said.
Banerjee also says the Asia region's banking and finance sectors are in better shape to face the current crisis after efforts to rebuild a stronger banking sector following the financial crisis of a decade ago.
"The region is likely to withstand the brunt of the financial turmoil because of the many policy measures undertaken after the 1997 financial crisis," he said.
The recovery in markets comes ahead of a scheduled meeting of central bank governors from Japan, China, Australia, India and several South Asian and South-East Asian countries meeting in the Thai capital Bangkok Saturday in a closed door session appraising recent developmnents on the global financial markets.