Fri, Oct 19, 2001 page19

• Asian trades rise as war whips markets around

  Equity investors, used to making investments they'd hold for years, are selling stocks and shifting money between currencies, debt and commodities on concern the war on terrorism will slow global economies

  • BLOOMBERG
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  Money manager Ng Ean Kiam did twice as many trades as usual in the two weeks after the Sept. 11 terrorist attacks and even now has less time for a break as currencies, stocks and commodities gyrate.

  "I'll move money around more," said Ng, who helps manage US$600 million at Credit Agricole Asset Management Singapore Ltd.

  "I've been able to add value by acting on the volatility."

  The job of Ng and other equity investors used to be visiting companies and making investments they'd hold for years. Now they're selling stocks and shifting money between currencies, debt and commodities like gold on concern the war on terrorism will slow global economies. That means keeping a sharp eye on the news and price graphs on their computer terminals.

  "I'm looking to increase cash holdings and sell stocks," said Franki Chung, who helps manage US$1 billion in Asia at TAL CEF Global Asset Management Ltd in Hong Kong. "We have a higher-than-normal cash level, over 10 percent." As investors dump stocks they are selling Asian currencies, providing an opportunity for banks and other traders to buy.

  The Singapore dollar fluctuated an average of 0.6 percent up or down in the two weeks after the attacks that destroyed New York's World Trade Center, having averaged a 0.4 percent daily move in the two weeks before. That prompted Singapore's central bank to announce a wider band in which the currency can trade to give it more flexibility in managing the foreign exchange rate.

  "Large swings create the potential for large gains," said Diane Ho, a treasury economist at United Overseas Bank Ltd in Singapore. "Now's the time to go into trades." And large swings there have been. According to Bloomberg Analytics, the price of gold has an annualized volatility of 18 percent in a 30-day period after the attacks, meaning it could be 18 percent higher or lower in the coming year. Before the attacks its volatility was 11 percent.

  The yen climbed 2.8 percent on Sept. 12, the biggest gain in two years. The yen's annualized volatility jumped to 13.1 percent in the 30 days after the attack, a level not seen since March 2000. Japan's central bank sold its own currency seven times last month, curbing the yen's ascent and causing moves of about 0.5 percent within minutes on each occasion.

  Crude oil slumped 30 percent in the two weeks after the attack, including its biggest one-day drop in a decade, on concern a global slowdown would reduce demand. It rose almost 3 percent Friday on speculation the US and UK may widen their war against terrorism beyond Afghanistan to oil producers in the Middle East.

  "You take the opportunity to buy and sell when the market is out of the ordinary," said Stuart Goh, a fund manager at Pacific Asset Management Ltd, which invests S$100 million (US$55 million) in Asia and the Pacific region. "We've increased our trade activity, moving between currency markets."

  In the past month, whenever investors felt they could resume their jobs as normal the crisis took new turns, each equally hard to evaluate.

  The cost of the attacks hadn't been assessed before the US started retaliatory strikes on Afghanistan terrorist groups.

  That had barely got underway before protesters started battling police on the streets in Indonesia, Malaysia, the Philippines and Pakistan, threatening to drive off foreign investors. The infections of 12 people with anthrax in the US posed an even less familiar threat.

  The result is a greater-than-usual disagreement about where to put cash and that means wider price swings.

  Chan Cheh Shin, a fixed-income fund manager at DBS Asset Management (Singapore) Ltd, which oversees about US$2.2 billion in Asia, says the dollar may strengthen as Western banks prevent funds reaching the terrorist groups, stopping fresh attacks.

  John Beggs, chief economist at Allied Irish Bank Plc, disagrees. He expects US consumer confidence to "fall sharply" and lead the dollar weaker.

  Equity investors say they may backtrack on their sales of stocks when signs emerge that the US is winning its war on terrorism and that nine Federal Reserve interest rate cuts this year are helping to revive the economy.

  "Of course I'll hold the US dollar and some gold," said Ian Lui, who helps oversea US$500 million in Asia outside Japan at Allianz Asset Management Ltd.

  Holding cash and bonds "is just a short-term tactical move," said Philip Chiu of RBC Investment Management (Asia) Ltd, which oversees US$200 million in Asia, excluding Japan. "If investors see things start to settle and political risk premium coming down, for sure money will return" to Asian stocks.
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