Problems remain

01 December 1997 00:00  [Source: ACN]

Korean and Thai sectors attract negative scrutiny, as Indian and Indonesian markets succumb to pressure

November saw negative attention refocus on the South Korean and Thai corporate sectors. Markets in India and Indonesia came under renewed pressure.

Market summaries:

South Korea became the region's most vulnerable market. Acceptance of an International Monetary Fund (IMF) package indicates the severity of the problems facing the South Korean authorities. Concern grew about corporate health and lower growth rates. The stock market headed towards a 10-year low and the currency fell to an all-time low of well below Won1000:US$1.

The majority of chemical stocks performed much worse than the overall market, with Hanwha and Yukong among the weakest. Hanwha highlighted its attempts to move away from chemicals with an indication that job cuts were likely in response to a dismal earnings outlook. Moody's Investors Service announced it was looking at some aspects of Yukong's long-term debt due to the weak won and South Korea's buildup of refining and chemical capacity. South Korea's problems, however, should not detract attention from the continuing problems affecting both the market and the chemical sector in Thailand.

The corporate sector remains deeply troubled by a combination of high debt and weak domestic demand. Chemical stocks are being further affected by the persistent weakness in bulk Asian prices.

Thai Petrochemical Industry (TPI) and TPI Polene have been the hardest-hit stocks due to speculation concerning their heavy overseas borrowing. On an absolute basis, TPI this year remains one of the worst performers in ACN's coverage. Its stock was suspended because the company failed to meet the deadline for publication of Q3 results which, when released, showed the impact of the weak baht.

Vinythai's stocks were suspended in mid-November for the same reason. When its results were released, they showed an improvement at the operating level. The Indonesian market suffered one of the largest falls during the month, breaking through the key 400 level. Despite the IMF financial package, sentiment remains negative, especially towards the currency. The central bank is allowing market forces to determine the level of the rupiah, raising fears that further falls will occur.

Another problem for the country's chemical sector is that the IMF package calls for tariff reductions by 2003, broadly in line with Asean targets and a host of other structural reforms. Even though the government may decide to go for a gradual rather than one-off reduction, the negative implications of lower protection have been reflected by share prices. Hard-pressed TriPolyta, for instance, fell further during the month on the prospect of lower PP tariffs which added to concerns for the company following poor H1 1997 results. The results themselves, showing reduced volumes and a substantial foreign-exchange loss, confirmed the worst fears for TriPolyta's outlook. The market was also assessing the implications of the closure of a local bank linked to cracker operator Chandra Asri.

In contrast, Polysindo continues to hold up against the negative sentiment. It has indicated plans for a Rp1bn (US$291 000) rights issue which will help fund expansion.

Underlining its position as one of Asia's stronger economies, the Taiwanese market has held up quite well in recent weeks. However, it continues to watch developments in South Korea very closely.

Strong export and industrial production data released during the month, with export orders reaching a monthly record high of US$11bn in October, supported a healthy 6.9% Q3 gross domestic product growth figure. But a weaker won will improve the relative competitiveness of South Korean ex-porters relative to Taiwan, potentially putting pressure on Taiwanese manufacturers.

The majority of the chemical-sector stocks continued to underperform the index, however. Notable here were the large capitalisation stocks in the Formosa Group, which responded to weaker bulk chemical and fibre prices and to downbeat Q3 results.

It remains to be seen just how sustainable is the recovery in the Hong Kong and Chinese markets after their October collapse. The mar-kets' mainstream indices recovered in November, taking the major stocks with them. But a better illustration of underlying sentiment towards the Chinese market could be the B-share index, which declined to a 1997 low in November. Cited factors include the Yamaichi closure and the lack of specific support measures from the Chinese central government. Yamaichi was involved in capital-raising in the Chinese B-share market. Economic data from China continues to point towards a subdued domestic economy. For example, the rate of growth of money supply fell back in October. Producer prices also declined, backing fears of deflation.

Public announcement of the merger between various Jiangsu chemical and oil companies confirmed what the market has come to suspect, that the impact on the listed Yizheng is unlikely to be very great in either operational or asset terms. Having held up well through the recent problems affecting Asia, the Indian market finally succumbed to negative sentiment, although to an extent it was self-induced. Concerns over a political crisis and a general election were the main causes of the decline. Worries over a delay to economic reform and a currency decline also put pressure on the stock market. The leading chemical stocks underperformed the falling market during November, particularly Indian Petrochemical Co Ltd. Its performance was not helped by interim results which showed a 44% fall in net profit, mainly due to lower prices. Reliance also lost ground during the month. The market was not inspired by its one-for-one split as the focus switched to the weak regional polyester pricing environment. However, the group has not stopped fundraising and is now in the process of seeking bond-funding for its telecommunications business. Reliance also continued its process of refinancing existing loans which essentially involved replacing high-cost borrowings with cheaper money. The group raised US$150m in loans in November.

Japanese stocks held up quite well during the last month, although the full implications of the Yamaichi closure had not emerged as ACN went to press. The interim results season in the chemical sector did little to alter the impression that the current year will be tough for the majority of the industry. Mitsubishi Chemicals' H1 results reflected the company's volume gains and cost-cutting. H2 could be tougher. Nippon Shokubai came under severe pressure during the month as a result of its unimpressive interim results even though it enjoyed strong monethylene glycol prices.The poor outlook for super-absorbents further undermined its share price. Showa Denko cut its own net profit forecast by almost 30%, to reflect the difficult market conditions.

Asian sharewatch
	Value 24 Nov 1997	Value 3 Jan 1997	% change year to date	Value 24 Nov 1996	% change 12 months
China (HK$)
Shanghai Petrochemical	1.670	2.450	(31.8)	1.990	(16.1)
Yizheng Chemical Fibre	2.000	1.960	2.0	1.740	14.9
Jilin Chemical	1.180	1.450	(18.6)	0.910	29.7
Zhenhai Refining	3.200	2.850	12.3	2.150	48.8
HS China Index	855	1059	(19.3)	802	6.6
Taiwan (NT$)
Far Eastern Textile	33.30	25.50	30.6	26.70	24.7
Formosa Chemicals and Fibres	29.60	40.40	(26.7)	39.70	(25.4)
Formosa Plastics	50.50	62.80	(19.6)	62.40	(19.1)
Nan Ya Plastics	51.00	58.10	(12.2)	57.20	(10.8)
Taiwan Polypropylene	33.10	46.30	(28.5)	51.00	(35.1)
Taiwan Styrene Monomer	23.50	34.80	(32.5)	33.50	(29.9)
Taiwan Index	7823	6820	14.7	6939	12.7
South Korea (Won)
Hanwha Chemical	4300	6169	(30.3)	7806	(44.9)
Honam Petrochemical	8450	7900	7.0	11 300	(25.2)
LG Chemical	11100	7900	40.5	9550	16.2
Yukong	11800	16000	(26.3)	18600	(36.6)
KOSP Index	506	654	(22.6)	731	(30.8)
Thailand (Baht)
National Petrochemical Co	20.25	17.50	15.7	27.25	(25.7)
Thai Petrochemical Industry	6.90	22.90	(69.9)	25.15	(72.6)
Thai Plastics and Chemicals	80.50	86.50	(6.9)	89.50	(10.1)
Vinythai	2.50	4.80	(47.9)	6.40	(60.9)
Bangkok SET Index	422	787	(46.5)	968	(56.4)
Indonesia (Rp)
Indo-Rama	2050	2250	(8.9)	2200	(6.8)
Trias Sentosa	275	1275	(78.4)	1200	(77.1)
Polysindo	1400	1275	9.8	1275	9.8
TriPolyta ADRs (US$)	2.88	6.63	(56.6)	7.00	(58.9)
Jakarta Index	399	646	(38.2)	628	(36.4)
India (Rs)
Gujarat Alkalies and Chemicals	58.00	81.00	(28.4)	68.50	(15.3)
Indian Petrochemical Corp Ltd	69.75	121.00	(42.4)	106.25	(34.4)
Reliance Industries	155.75	108.25	43.9	94.75	64.4
Bombay 30 Share Index	3523	3264	7.9	2995	17.6
Japan (Yen)
Mitsubishi Chemical	261	376	(30.6)	439	(40.5)
Mitsui Toatsu	644	860	(25.1)	875	(26.4)
Showa Denko	200	261	(23.4)	296	(32.4)
Nikkei 225 Index	16722	19446	(14.0)	21294	(21.5)
Source: Reuters

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