When Chips Are Down

Jet Airways' fall underscores the fact that foreign investors pulled an estimated $275 billion out of India's stock market this year. And that outflow—the result of debt-laden foreign banks and hedge funds selling assets in a panic to raise capital—also caused the Indian rupee to depreciate to its weakest level since pushing the cost of fuel and other imports to India higher and adding yet more stress to the airline's bottom line.

Looking forward, strategists disagree on whether this "vicious redemption cycle" (as Morgan Stanley's managing director in India, Ridham Desai, termed it recently) is largely over or could wreak yet more destruction as it plays out. Sean Darby, head of regional strategy at Nomura International in Hong Kong, is bearish. In an Oct. 24 note to clients he warned of "a growing risk that the G7 credit crisis is spreading into an outright emerging-market dual banking and currency crisis." His argument is that capital flight, particularly from countries with current account deficits, will continue to rattle financial systems for some time to come and could undermine currencies from Vietnam to Iceland, putting companies in those places at risk of currency fluctuations, loan rollover issues and even insolvency. He says that the dangers come from rising foreign liabilities and wakening local currencies in emerging Europe.

But the news isn't really good anywhere, as prospects for global growth darken. Singapore, a trade, tourism and financial bellwether in Asia, has already slipped into recession, though its major listed companies are comparatively well capitalized and therefore not at great bankruptcy risk. Still, its economy is in for a rough patch as the construction sector, trade, and finance have all shifted into reverse. Tourist visits peaked at 10.3 million last year but could dip to 8 million in 2009, which is why nervous travel agents, restaurateurs and retailers are watching Adelson's every move with bated breath. His latest Asian venture, a $4 billion integrated casino resort called the MarinaBay Sands, is scheduled for completion in the city in late 2009. But following local media reports last week suggesting it had been delayed due to the Sands' financial woes, the Singapore Tourism Board issued a statement that it would "facilitate the success" of the project, signaling that official financial support could be in the offing. "Economics 101 suggests that the next few years will be particularly difficult," says Richard Martin, managing director of International Market Assessment Asia. "From 2011 onwards Singapore's gamble should pay off, but getting to 2011 will be tough." Indeed, many of the world's largest companies could be walking a tightrope to get there.

With Sonia Kolesnikov-Jessop in Singapore and Jason Overdorf in New Delhi

© 2008