Asia markets on tenterhooks on Taiwan woes

But the downside was seen limited due to the authorities’ determination to prop up the market. Taiwan’s T$500 billion (US$16.2 billion) stock stabilisation fund said on Monday it was ready to support share prices over a two-week period.

In the currency market, non-deliverable forward premiums against the Taiwan dollar rose sharply at one point, indicating a preference for holding the US dollar. But they eased after the central bank bought Taiwan dollars aggressively to keep it above the 30.8 psychological threshold.

"Given that Taiwan has massive foreign reserves of more than US$ 110 billion in its war chest, it should be able to withstand the short-term capital outflows," said a Singapore dealer.

The jittery period caused by the Taiwan presidential election was expected to fizzle out soon, analysts said. A number of stock markets outside of Taiwan seemed to have gradually pulled themselves together following the initial negative reaction.

But they were still waiting to see what China and Taiwan would do over the next few days. Analysts said it was unlikely China and Taiwan would make impulsive decisions and escalate cross-straits tensions further. "From our point of view, things don’T look too bad on the medium-, long-term front. The basic reality of Asia has been that two wealthy countries have never gone to war directly," said Raja Viswesvaran, head of fixed income at Bank of America in Hong Kong.

RIGHT MOVES COULD SEE BULLS RETURN: Willian Overholt, Asia Strategist at Nomura Securities, said concrete negotiations between China and Taiwan and some reassurance of one-China policy would bode well for regional markets. "If we see those things, and we saw one step toward that, we are going to see a roaring bull market. If we don’t see either of those things, we are in for big trouble," he said.

"China has prepared its people for any outcome."

Overholt said he suggested investors take a wait-and-see stance on Taiwan for now. "We will just wait and see how the relation with the mainland pans out…if there is any reasonable outcome over the next couple of weeks," he said. "But the Taiwan economy is extremely resilient. The amount of the economy that is politically controlled and will be affected by the big political controversy will be very small," he said.

THAI GROWTH STRONG, NPLS STILL A PROBLEM: The Thai economy grew 4.2 per cent in 1999 and is seen heading for 4.4 percent growth this year, a leading government economic think-tank said on Monday.

This was a major bounce from deep recession in 1997 and1998. But the impact of the data on local stocks and the baht was limited as they were mostly in line with analysts’ expectations. Maris Tarab, hea of research at KGI Securities One in Bangkok, said despite positive GDP figures the market remained concerned about snail-paced debt restructuring.

"We have to accept that overall debt restructuring in the country is very slow," he said. The Thai financial sector’s non-performing loans (NPLs) at end-January fell marginally to 38.68 percent of outstanding loans. Merrill Lynch forecast total NPLs might fall to nearly 20 per cent of total loans by the end of this year. Despite an expected sharp drop, the amount is still high compared with other countries in the region.