After rebounding in early December, Asian markets retraced their gains, leaving the FTSE Pacific Bas...
After rebounding in early December, Asian markets retraced their gains, leaving the FTSE Pacific Basin ex Japan index 1.8% higher in local currency terms, but 1.8% down in sterling terms on the month. The markets were dragged downwards by the poor performance of the technology-heavy Nasdaq market of the US and the US economy slowed more rapidly than expected.
We expect Asian economic growth will slow down this year from the exceptional pace in 1999-2000. As always, differences in growth between countries are likely. Growth in China, Hong Kong and Singapore should remain relatively robust, albeit slower than in 2000, because domestic demand and restructuring efforts should help these larger economies to weather any slowdown in export growth. We expect China's growth should remain close to 8% per annum and its entry into the World Trade Organisation will spur the drive to reform the economy. Meanwhile, fiscal support to blunt the worst of the restructuring efforts should sustain final demand in the next 12 months.
However, we remain more bearish than the consensus on the prospects for growth in Indonesia, the Philippines and Thailand, because political concerns and lack of restructuring will reduce the ability of these smaller economies to withstand an export growth slowdown. Taiwan remains plagued by political concerns and banking system problems. Continued political uncertainty and weak financial systems will continue to undermine the weaker regional currencies like the Philippine peso, Indonesian rupiah, and Thai baht.
We believe interest rates are currently on hold in the region. After the Federal Reserve's unexpected half-percentage point cut in interest rates on 3 January, we expect further rate reductions in the year, which should be positive for global equity markets. Key themes on the economic backdrop of the region remain the same.
First, although growth momentum has peaked, the slowdown is from the exceptional pace in 1999-2000. Real growth will be in the 4-6% range in the region, except China, and is close to the long-run sustainable trend. Conditions should remain favourable in Asia-Pacific despite the slowing momentum. In China, growth should remain close to 8% per year.
Real growth will remain much more balanced than before the Asian financial crisis. Growth is not down to excess investment financed by borrowed money from abroad. In all economies covered, the current account should remain in surplus in 2001.
Asian economies with domestic strength will withstand the coming economic slowdown better than economies where consumption and investment has yet to recover. This means that China/Hong Kong, Korea, Singapore and Malaysia will weather the coming growth deceleration much better than the Philippines, Thailand and Indonesia.
Hannah Duong is fund manager, South East Asia Fund, at Norwich Union
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