Fears of a global crash sparked by Wall Street's great leap downwards caused near-panic throughout the battered Asia region yesterday, with stock prices falling everywhere except in Japan.
In the most drastic reaction, Malaysia announced severe exchange controls and said foreign investors would have to keep investments in Malaysian shares in the country for at least one year.
This announcement caused the Kuala Lumpur Composite Index to plunge nearly 14 per cent as foreigners bailed out in a rush. But with the US dollar weakening as investors fled from US stocks, Asian currencies generally improved. The rising yen in particular - it got up to 1.38 against the dollar compared to 1.46 two months ago - gave the rest of Asia's currencies a welcome fillip, and the emergency measures in Malaysia also propelled the ringgit upwards against the US dollar.
There is, however, a growing crisis of confidence in Asia in the world's financial and economic system. The prospect of a downturn in the US economy, on which so many Asian exporters depend, and the seemingly imminent implosion of the Russian economy, has cast a deep pall of gloom over the region. The Chinese President, Mr Jiang Zemin, yesterday called on Japan to "do what it should" to help beleaguered Asia shake off its economic crisis.
Japan is pivotal in the Asian region, and an economic recovery in Tokyo would help pull Asia out of the vortex. Mr Jiang told the visiting former Japanese prime minister, Mr Hideki Kaifu, that China was doing its part for the region and urged Japan to do likewise, according to the official Chinese news agency, Xinhua. He again vowed that China would not devalue the yuan.
Japan meanwhile defied the regional trend, with the Tokyo stock exchange closing up 1.86 per cent, but other markets continued their inexorable slide as investors fled in the wake of New York's 6.37 per cent dive on Monday.
The imposition of draconian foreign exchange controls by Malaysia cause a near stampede by fund managers out of Kuala Lumpur and other regional stock markets.
The Malaysian ringgit gained nearly 6 per cent on the day - though it is still 38 per cent down on its value of a year ago - while the Singapore dollar and Thai baht rose by 2.5 per cent. Under the exchange controls, non-residents will in future need the Malaysian central bank's approval to convert ringgit held in external accounts into foreign currencies.
Speaking on national television, the Malaysian Prime Minister, Mr Mahathir Mohamad, said the government would no longer allow ringgit held offshore to be repatriated after October 1st. He said Malaysia could lower interest rates to levels that would help revive business now that it had imposed exchange controls.
The Malaysian move follows a no less dramatic intervention but of a different kind in the last two weeks by the Hong Kong government, which used up $14 billion (£9.7 million) of its reserves in a frenzy of share-buying to prevent a collapse of its stock market.
Yesterday, for the second day, the government did not buy up shares and the Hang Seng Index finished down 2.92 per cent, following its steep fall of 7.1 per cent on Monday.
In all the turmoil, China remains a sea of tranquillity, with President Jiang, rather bravely, still expressing confidence that China could overcome this summer's devastating floods and achieve its economic growth target of 8.0 per cent for this year.
The main Chinese concern is that a steep fall in the yen would make it difficult to maintain the stability of its currency.
Dealers in Tokyo were quoted yesterday as saying that the bear market on Wall Street and uncertainty over global equity markets would keep the dollar under pressure and that it could fall to 13.5 yen in the near term.
Finance Ministry official, Mr Haruhiko Kuroda, told reporters the correction of the excessively strong dollar/weak yen has begun and will continue. Yen-based assets, including stocks, are growing increasingly attractive, and investors in Tokyo switched to these from companies which sell consumer goods to the American market, allowing a modest recovery on the Tokyo stock.
Meanwhile China has said it will contribute $540 million to Russia through the International Monetary Fund to help its economic recovery.
