By Bruce Gale, Senior Writer

IN AN interview with The Straits Times last week, Mr Robert Broadfoot of the Hong Kong-based Political & Economic Risk Consultancy described the fate awaiting Asia as a result of the global financial crisis as being analogous to the Gunfight At The OK Corral - but with one major difference.

Wyatt Erp came out of the iconic 1881 gunfight in Tombstone, Arizona, unscathed. The 'winners' in the current crisis are likely to emerge wounded, but still alive.

'No one stands to gain. Everyone is going to lose,' said Mr Broadfoot, adding that some groups are nevertheless well positioned to ride out the storm. 'Some of the big players to emerge out of this are going to be Asian.' They are likely to include HSBC, Singapore's Temasek Holdings and Beijing's China Investment Corp. They are all in an excellent position to snap up the assets of distressed US companies and their Asian subsidiaries.

Japanese banks are in a similarly strong position. For years, Japan's problem has been that its banks had too much cash, not too little.

Asian countries may not be about to share the fate of Lehman Brothers or Bear Stearns, but it is nevertheless possible to distinguish between them in terms of the way the crisis will impact on the region's economies. With consumption in the US faltering, the impact on Asia's export-oriented economies is not hard to imagine.

What has so far received far less attention, however, is the way in which the crisis may impact foreign investment inflows. Not only will there be less money coming into Asia but the foreign companies prepared to consider such investments are also likely to be far more risk averse than before.

Foreigners are likely to see Thailand and Malaysia as particularly risky. Both countries have been so preoccupied with their internal problems that their respective leaderships have displayed little interest in staying abreast of international financial developments. The newly appointed finance ministers of Malaysia and Thailand face a steep learning curve.

Take a look at the ways countries have reacted to changed conditions in bond markets in recent weeks. Worried about higher borrowing costs, South Korea shelved a US$1 billion (S$1.4 billion) sovereign debt sale early last month. The move came not long after the Philippines, which had earlier announced that it wanted to sell US$750 million in bonds during the year, also announced a change of policy. Lacking fresh directives from Kuala Lumpur's political leadership, however, Malaysia went ahead, selling about US$579 million in 20-year government bonds in the same week that Lehman Brothers went bankrupt. As a result, it had to pay a full percentage point more in interest.

Seoul's economic planners may be responding more appropriately to international developments than their counterparts in Kuala Lumpur, but South Korea has its own property bubble to deal with. The country's economic nationalism is also well known.

Few US private equity funds are likely to forget the problems experienced by Lone Star after it purchased the Korea Exchange Bank (KEB) in 2003. In June this year, a South Korean court cleared Lone Star of stock price manipulation. But former government officials and executives still face allegations that the US company's purchase of KEB was illegal. A verdict is expected by the end of the year.

Vietnam is likely to be another big loser, although in this case, the problem has more to do with the challenge of dealing with the economic exuberance of the recent past. At a time when the stability of many local banks is in doubt, HSBC and Standard Chartered have won approval from the State Bank of Vietnam to become the first foreign banks to open wholly owned entities in the country.

The shortage of funds resulting from the global international crisis, however, suggests that few foreign banks are likely to follow. Nor can Vietnam expect to receive much foreign funding to finance badly needed infrastructure projects.

Indonesia, on the other hand, looks far more attractive. It is more politically stable than many Asean countries, and its policymakers have already shown a willingness to adjust. In the middle of last month, for example, Jakarta dropped a regulation that threatened to block Maybank's troubled US$2.7 billion takeover of a local bank.

All of the above countries can argue, rightly, that they are in far better shape now than they were in the 1997 Asian financial crisis. But this is unlikely to impress investors, who can now choose to pick up bargains in the US, Australia and other Western countries instead.

The battle for the foreign investment dollar has only just begun. And like the 1881 gunfight, reputations are likely to be made and lost in the coming months that will last for some time to come.

bruceg@sph.com.sg

This article was first published in The Straits Times on Oct 1, 2008.

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