Aliens blind to sense of doctor's diagnosis
I must confess to having some sympathy for Dr Mahathir Mohamad when he is on the subject of the fickle ways of foreign investors.
I might opt for a different choice of words than the Malaysian prime minister, but he is not all wrong when he blames the troubles of his country and of some of its neighbours on the mercurial moods of outsiders, who may not even have visited the places on which they think themselves such experts.
Yes, it is true that Asia has mostly itself to blame for the troubles it now suffers. Too many projects were undertaken, both in the private and public sectors, with little concern for returns they could generate. The empty office towers of Bangkok offer strong testimony to this fact.
It is also true that national prestige has played too great a role in many investment decisions. The great proofs of the 'Asian Miracle' have proved to be more hubris than miracle. Some humility is now in order.
But who financed these projects? Only last year, foreign bankers were still falling over themselves to provide US dollar funding to almost everyone who wanted it. There is growing evidence that they also widely ignored central bank guidelines to restrain the overheating that all their lending threatened to bring.
Look at Indonesia. Until the rupiah finally cracked under the pressure late last summer, the foreigners were happy to connive with Indonesian companies at fooling Bank Indonesia.
It asked them to declare the currency of their loans, but they concocted various tricks to make it appear rupiah lending. The official figures never picked it up and this made the shock all the greater when the truth came out.
The foreigners could have known and some did know. Many more, however, had their loan sales teams out in force, peddling the argument that US dollar interest rates were so much lower than domestic currency interest rates that the difference would compensate for any conceivable decline in the currency. They got the currency movement figures wrong by several places of the decimal.
So who are they now to offer patronising advice on austerity measures? Let's have some humility among you too, lads.
The same goes for many portfolio investors. In their home markets, the big fund managers have holdings of stock that have yellowed in the vaults since their grandfathers ran the money. The portfolios are often such proxies for the markets that the managers no longer bother to buy and sell individual stocks.
They do it through index-linked baskets.
Perhaps it is true they are not as conservative as they used to be, but for many years you could say of some of the big European names active in Asian stocks that their holdings in their home markets varied between 70 and 80 per cent of their total funds under management and never went outside these parameters.
When they came to Asia, however, they were happy to go from zero holdings in Thailand one day to a 400 per cent overweighting against their benchmark the next and back down again when the fancy caught them.
Now they complain of the risk and the volatility.
Well, just ask yourself, my dear friends, who created this risk and volatility? Here is a mirror. Do you see the answer yet? It will still be the foreigners from whom domestic investors take their lead in Asia. There is no getting around the size of the funds they manage. There is also no getting around the fact that the Americans have got it generally right in recent years on how business should be run. The models they have evolved are good ones.
But it irritates me a little when kids in New York dealing-rooms pontificate on Asian faults to which they had contributed as if it were only Asian businessmen at fault. Some admission of their own role in these troubles is required. Yet they don't even begin to recognise it.
Dr M is on to something when he talks about this sort of thing. I'm still willing to lend him an ear.
