S Korea misses out as stocks rebound in the Far East

Almost all the Asian stock markets showed signs of cautious optimism yesterday. But, as Stephen Vines reports from Hong Kong, there is no sign of an end to the problems in Seoul.

A more familiar gloom reasserted itself yesterday in South Korea, where the roller-coaster of the Seoul stock market sent shares soaring at the end of last week, with the market falling by almost 5 per cent.

Some of the fall came from profit taking but it was also triggered by news of the failure of the Halla Group, the country's 12th-largest conglomerate, which owns a fork-lift trucks factory in Merthyr Tydfil, south Wales, employing 180 people. Yesterday corporate uncertainty deepened with an announcement by Hyundai, Korea's biggest conglomerate, which said it was cutting investment by 30 per cent and intended to refocus on the export market.

Meanwhile, another conglomerate, Daewoo, announced that it would be taking over the ailing Ssanayong Motor company, a move seen as risky by investors.

The government also entered the takeover mood by seizing control of the troubled Seoulbank, possibly with a view to throwing it into the merger pot with other grief stricken financial institutions.

South Korea is just days away from the signing of the biggest international financial rescue package in history and investors are still not sure whether it will be enough to put the world's 11th largest economy back on its feet.

However, Malaysia's troubled stock market registered its biggest one- day rise in history yesterday, bursting through the gloom of recent months. The blue-chip index gained more than 11 per cent in response to the government's announcement of a tough austerity programme and a decisive cut in economic growth forecasts.

Much of the damage in Malaysian financial markets has been self-inflicted following attacks on international financiers by Prime Minister Mahathir Mohamad. However, his deputy Anwar Ibrahim, who also serves as the Finance Minister and is better liked by the financial community, moved to centre- stage by announcing the austerity plan last Friday. Yesterday Mr Anwar went further to reassure investors, in effect negating Dr Mahathir's calls for outlawing currency speculation. "Malaysia will also continue to practise a market system," Mr Anwar insisted, saying there were "no plans to introduce any controls over foreign exchange".

He announced that government ministers would set an example in the austerity stakes by taking a 10 per cent pay cut. Malaysian economic growth forecasts for next year have been cut from 7 to 4.5 per cent. Government spending will be slashed by 18 per cent and measures have been introduced to tighten credit supply.

The government finally appears to be speaking the same language as investors who have knocked more than half off the value of shares on the Kuala Lumpur stock exchange since the beginning of the year.

In Thailand, the Finance Minister, Tarrin Nimmanahaeminda, announced that only two of 58 finance companies whose licences were suspended would be allowed to reopen. Investors responded well to the announcement with a modest rise in share prices.