Exports have led the economic recovery in many of Asia's Pacific Rim economies. Companies took advan...
Exports have led the economic recovery in many of Asia's Pacific Rim economies. Companies took advantage of the simultaneous factors of weak local currencies and strong demand from developed economies for technology products.
Recovery has since broadened with improving domestic demand and is now escalating with the positive effect of yet further improved exports. Yet increasing inflationary pressures in the US, which in turn may dampen demand in the technology sector as a result of rising interest rates, could hamper the benefits of this primary driver. On the other hand, a continued strong expansion in the imports of many Asian economies suggests they may not be so dependent on export-led growth. Intra-regional trade is improving and is self-supporting, and Japan's slow recovery from long-term recession is a powerful factor.
In most developed economies, prudent monetary policy is leading to rising interest rates. However, the risk of this happening in the Asian Pacific region as a whole is some way off. The economic recovery has been led by an impressive performance in South Korea, but the pace of growth there has resulted in an increase in domestic credit as a proportion of GDP. In this context, Korea stands out from other Asian economies. The absence of inflation has enabled a flexible monetary policy to be followed, but the speed of recovery means Korea may need to increase interest rates before other countries in the region.
Thailand has also experienced a more broadly-based recovery; it too has undergone widespread economic restructuring which has led to a growth in disinflationary forces. This, in turn, may give rise to overheating, but the Bank of Thailand is unlikely to increase rates just yet.
Forecasts of real economic growth in 2000 for the region range from a modest 3.6%pa in the Philippines to 9.6%pa in Korea. In Malaysia, China, Singapore, Hong Kong and Thailand, the forecasts of real GDP growth is 6.0%pa or more.
In addition, corporate profit growth continues to exceed the economic growth of the region mainly due to restructuring. Also, corporate inventories are being rebuilt in the wake of the recession. Today Asian corporations are far more focused on shareholder's needs and are more likely to follow US corporate models. .
The interest of investors has been focused on developed markets and, in particular, companies in the turbulent technology sectors.
However, the reassessment of valuations in the developed economies and the potential ability of Asian companies to supply components to both 'old' and 'new' economy markets are two good reasons for investors to pay more attention to the region.
Philip Thitchener is a fund manager at Exeter Investment Group
Succeeding co-founder Simon Rogerson
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