IT'S hard to know which crisis, real, imagined or smouldering, we should be looking at right now. Asia, of course, is still in the forefront of everyone's consciousness. The Long Term Credit Bank (it of the unrecoverable, difficult to recover and recoverable loan book) is to merge with the Sumitomo Bank. Initially, this gave the markets something of a boost and the Nikkei rallied, but there are a significant number of banks on the merger list and there will have to be a lot of restructuring to keep the markets happy for more than a few days.
More positively, the Japanese government is also planning the creation of a bridge bank which would bring troubled banks under public administration while they evaluate the creditworthiness of borrowers. A bridge over troubled waters, or a bridge too far? It'll take time before we can judge, but it's a step in the right direction and should work if, as expected, the new institution operates in a similar manner to the US Federal Deposit Insurance Corp.
And so, while Japan is given the benefit of the doubt (temporarily at least), attention is turned towards the emerging markets, which are going through an equally torrid time. Pakistan devalued its currency by just under 4.5 per cent on Monday. If you remember, the West imposed sanctions on Pakistan following its nuclear tests a while ago. It seems the effects of the sanctions are taking hold. And things in South Africa were fraught over the weekend too. Although it refused to comment officially, the South African Reserve Bank called upon the help of the Bank of England and the US Federal Reserve to intervene and buy the rand on the markets. According to the Governor of the South African Reserve Bank, large-scale selling from a hedge fund caused the rand to plummet last Friday.
Hedge funds are nearly always blamed when a currency makes a spectacular dive for no other apparent reason, although the rand has been in a gradual decline for a long time. In any event, whoever was selling the rand forced it from 5.42 against the US dollar on Thursday to a high of 5.9605 on Friday.
Before opting for intervention, the South Africans had hiked official rates from 17.34 per cent to 18.31 per cent and the market drove them even higher afterwards. The problem for South Africa is that people are assuming that the problems of Asia will inevitably affect South Africa's still fragile economy.
And, hopping back to Asia, President Clinton's visit brought the Chinese economy into focus again. Everyone wants to be upbeat about China's prospects, but we still know so little about the country. A few photo opportunities of Bill, Hillary and Chelsea on the Great Wall don't give much insight, other than the construction industry builds things to last.
Western markets want to apply Western measures and ideals to every other market, but it isn't always that easy. China has an incredible history and culture, but not one that's always readily understood by the West. A biased view, maybe, but Jung Chang's book, Wild Swans, gives an insight into modern China by looking at the lives of three generations of Chinese women and is well worth reading.
Anyway, China has hired Western bankers to sell $1 billion (£719 million) of global bonds to raise money for infrastructural projects. At the moment, China's 10-year global dollar bonds yield around 180 basis points more than 10-year US Treasury bonds. Given that treasuries have been yielding around 5.50 per cent, borrowing dollars at 7.30 per cent for the Chinese isn't too bad.
Actually, when those bonds were first sold, they only yielded 100 basis points over treasuries, so selling US bonds and buying Chinese bonds a couple of years ago wasn't exactly the great trade everyone thought it could be.
That's the problem with the so-called emerging markets. You're never quite sure where they're going to emerge. Which brings us nicely to the other crisis economy of the week Russia. The Russians have been vehemently opposed to any devaluation of the rouble and they've been backed by the IMF in this stance. However, on Monday, there were reports (hastily denied, but attributed to the finance minister) that a devaluation couldn't be ruled out if tax collection weren't increased in the coming months.
Cue a bloodbath in Russian debt as investors, whose confidence was already shaky, decided that they wanted to bail out. Russia issued 30-year bonds a few weeks ago (with a 10-year put option so that nervous investors could sell back to the government in 2008) and that issue was increased to cope with demand. Someone commented at the time that 30 years from now the Russians would have the economy under control and that they'd have no problem repaying the debt. Probably. But in the meantime those bonds, which investors had bought at around 750 basis points over treasuries, have slipped out to 1,000 basis points over treasuries. Oh well, there's always the old Russian railway bonds still awaiting repayment . . .
Meanwhile, the impact of the domino effect is being felt closer to home. In Scotland, Hyundai has postponed the construction of a memory-chip plant in Dunfermline which I'm sure is giving the British Chancellor Gordon Brown even more headaches because the site for the plant is in his constituency. As if he didn't have enough problems with British base rates to worry about.
In the meantime, I'm waiting for the price of imported sports gear to come crashing down. By the time it comes to replacing my Reebok (made in Indonesia) trainers next September, I'm hoping they'll be significantly cheaper than the £50 I paid for them last year. My sweatshirt (made in Malaysia) should be down from £35. And my shorts (made in Singapore) well, they should be practically free by now.
I noticed that Nike's new-season tennis dress as sported by Monica Seles this year is a mere £29.99 (sterling) both for the dress and the accompanying "Under Layer Unitard". Given that the dress is see-through, you can't buy one without the other a nifty marketing ploy if ever I saw one.
I suppose people will buy them as soon as they're available here and, since I haven't seen the label, I can't say where they're made. But the Far East seems like a reasonable bet. Who says you can't make money out of Asia? Sheila O'Flanagan is a fixed-income specialist at NCB Stockbrokers
