The possibility of a prolonged war in Iraq, an increased threat of terrorism and a mysterious respiratory illness are all combining to damage sentiment in Asia
Now that bombs are falling on Baghdad, some global markets are showing signs of relief that the uncertainty of when the war would start is over. But in Asia, the economic doubts are just beginning.
The surge in share prices in the biggest economies fits with many investors' views that the threat of war in Iraq may have unsettled markets more than the conflict itself. Yet Asia's markets fear the war could be messier than hoped and may destabilise some of the region's shakier governments. Some of them, incidentally, also have the region's largest Muslim populations. The concerns give those investors already leaving South East Asia for economic reasons another excuse to reduce their holdings. Many have taken a closer look at the post-Asian financial recovery and many do not like what they see. Across Asia, governments are again propping up stock markets. Some have even started blaming speculators for their economies' woes.
If all that were not enough, Asia is suffering a mysterious respiratory illness that is scaring away tourists and closing schools. 'Murphy's Law'' sure seems to be ruling Asia these days; just about anything that can go wrong is going wrong.
Asia will experience more economic fallout from the war than most of the world's economies. The hike in global oil prices is already taking its toll, as is the sliding US dollar, which is hurting the region's competitiveness. And slowing global growth is shining a spotlight on Asia's over-reliance on exports.
It is quite a reversal of fortune for a region that was expected to boast the world's strongest economies this year. Even though Japan is walking in pace, China is booming. Healthy growth also can be found in Malaysia, South Korea, Thailand and Vietnam. But if the war in Iraq drags on, Asia may feel more pain as global export demand falls.
Even if war in Iraq ends quickly, though, Asia then has North Korea to think about. US forces in South Korea worry Pyongyang will take advantage of Washington's focus on Iraq to increase tension on the peninsula. North Korea on 22 March suspended economic talks with the South in retaliation for Seoul's move to allow military exercises with the US.
The 'North Korea effect'' is increasingly working its way into markets around Asia. Things have gotten so volatile in South Korea's economy that Finance Minister Kim Jin Pyo publicly denied that the country is facing a financial crisis. While the South is also suffering from an accounting scandal at the SK Group, concerns about the North are a major concern.
Investors in Asia are also grappling with less tangible fears like increased terrorism in the region. Rational or not, business people in the Philippines worry that even more capital will leave if war in Iraq provokes Islamic extremists to step up terrorist activities.
An airport bombing that killed 21 people in the city of Davao early in March grabbed the world's attention. Concerns about further attacks have added to problems in the Philippines economy, which already is being undermined by a worsening budget deficit. President Gloria Arroyo resorted to asking banks, exporters and families of overseas workers to buy the local currency to keep it from falling.
The concern is that a messy war in Iraq will unnerve the traditionally moderate and tolerant Muslims of South East Asia. Here, Indonesia is the biggest concern for investors. The nation has the world's biggest Muslim population and it is going through a fragile transition to democracy.
'If the war is not confined within Iraq and it exacerbates tensions in the Middle East and triggers international terrorism, this will hurt Indonesia,'' says Fauzi Ichsan, an economist at Standard Chartered Bank in Jakarta.
It is important to put all this in perspective. The US-led campaign in Iraq has not provoked violence in the streets of Jakarta. Investors' fears about Indonesia have much to do with the so-called TV effect ' an image problem engendered by international television clips that distort the true picture of daily activity.
Yet the fallout from last year's Bali bombings that killed 202 people continues to work its way through Indonesian markets. The US recently renewed a travel warning for Indonesia, first made in October, because of the start of the military conflict in Iraq.
As a result of the war in Iraq, 'Indonesia's frequent political demonstrations may escalate, increasing the potential for anti-American violence and for terrorist actions against US citizens and interests,'' the State Department said. It recommended that American citizens defer all travel to Indonesia and those already there should consider leaving.
The warning came the same day the Australian government said it had 'credible information'' that terrorist groups with a history of targeting Westerners may be plotting an attack in the Indonesian city of Surabaya.
It is enough to make investors wonder what else can go wrong in Asia's economies. Market volatility, war, mysterious illnesses, worries about terrorism, you name it. Many of Asia's economies may be in better shape than some members of the Group of Seven industrialised nations. But as recent events show, it may not take much more to knock them off kilter.
Bloomberg newsroom, Tokyo
Duo start roles on 1 October
Where true value lies
Economy to thrive despite global risks
Behaviours, animals or something else?