Domestic demand is an important factor in the emergence of Asian economies from recession, according...
Domestic demand is an important factor in the emergence of Asian economies from recession, according to Jonathan Schiessl, investment manager at Ashburton.
'Asian markets have generally been by far the best performers year-to-date,' he says. 'For the first time, domestic consumers in countries such as Korea, Malaysia and Thailand are driving their economies out of deep protracted recessions brought on by the Asian crisis in 1997.'
Asian countries have undergone a considerable transformation since the Asian crisis, adds Schiessl. 'This crisis was a very painful but necessary corrective process, in order to curb the political and economic excesses that resulted from misallocation of cheap and plentiful capital,' he says. 'To ensure recovery, corporate and fiscal restructuring was badly needed. Among other policies, financial markets were deregulated and structures were put in place to deal with banks' non-performing loans.'
Across the Far East, the financial sector in particular has undergone major restructuring. Mergers and acquisitions are occurring in the industry because the smaller players have found it difficult to compete with their larger counterparts.
Reginald Tan, head of research at Credit Agricole, says such restructuring, particularly in Korea, has attracted money back into the system, assets that were withdrawn during the financial crisis of 1997-1998.
'In the financial sector, major international companies have been buying stakes in local banks,' he says. 'The government has been forcing the conglomerates to clean up balance sheets by reducing gearing from 500% to 200%.'
Although growth is expected across all Asian regions, Tan believes it will be most pronounced in Korea and Thailand because of the restructuring changes.
Schiessl adds that Korea was the first country to show signs of recovery, with deregulation of consumer credit allowing phenomenal growth in credit card issuance and consumer loans.
'The same is happening in Thailand and Malaysia,' he says. 'In Thailand, this demand-led recovery has resulted in the Thai government and the IMF revising 2002 growth prospects sharply higher. Likewise, in Japan, first-quarter 2002 GDP figures released in June indicated that domestic demand grew 3.1%.
'Household consumption grew rapidly and deflation fell at a faster rate than expected. Evidence of consumption is apparent from increased visitor numbers at Tokyo Disneyland and rising condominium prices in Tokyo, with some retailers even reporting a cautiously improved outlook.'
Across the rest of the region, Schiessl says, Singapore is trying to encourage consumption by cutting both corporate and personal taxation over the next three years. The motivation behind this is to make corporates more competitive with the rest of the region and help encourage consumer spending.
Matthew Dobbs, executive director at Schroders, expects to see more merger and acquisition activity in Hong Kong.
'The lending market is depressed and it has been difficult for some banks to generate a high level of income,' he says. 'Smaller banks may merge with the larger players, though it is likely to be a drawn-out process.'
Restructuring of companies.
Tax cuts introduced in Singapore.
Improvements in financial sector.
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