Consumer confidence in Far East markets continues to climb amid interest rate cuts and increased job...
Consumer confidence in Far East markets continues to climb amid interest rate cuts and increased job security.
David Riddle, senior manager for Pacific equities at Legal & General says, that after last year's lull in confidence, consumers are now more secure about their employment, which is having a positive effect on spending.
He says: "Consumers in the Far East were previously shell shocked by economic problems, leading to job insecurity and the reigning back of their expenditure. Now these people are finding they still have their job and are probably also doing some overtime. There is a big element of catch-up expenditure as a result.
Riddle says the most outstanding rebound in consumer confidence is being demonstrated in Korea. In 1998, economic growth in Korea shrank by 5.6% but is expected to increase by 7% this year.
Increased confidence is being most strongly reflected in property and car sales. For example, June car sales increased by 86.1% in Malaysia against this time last year.
Riddle says retail sales in Hong Kong are positive for the first time in 12 months and tourist arrivals have increased by 11.4% against last year, a move driven mostly by mainland China.
He adds: "With increased property transactions and a steady increase in tourism in Hong Kong, we should start to see further major returns in the retail expenditure in Hong Kong in the second half of 1999.
Riddle gives the example of Hong Kong clothing manufacturer Giordano which is benefiting from an upturn in retail sales in the region and a sharp drop in costs such as rent and interest rates at the same time
He says: "The combination of these factors saw turnover up 12.6% year on year, with net profits increasing by 537.
"Its mainstream Chinese business, however, has not fared as well with turnover being down by 14% against the same time last year.
Riddle adds: "This is reflective of the prevailing deflationary environment in China where there is still insecurity about the employment environment.
Jason McCay, Far East fund manager at Martin Currie, agrees consumer confidence is picking up throughout the region. However, he says the extent of improvement is not evenly spread
"The markets that really stand out are Singapore and Hong Kong. In Singapore, internal factors such as salary increases and falling interest rates are stimulating renewed confidence and this has led to a 30% to 40% rebound in property prices and a strong pick-up in retail and car sales.
McCay says Thailand and Indonesia are at an earlier stage of recovery.
He says there is anecdotal evidence of improved consumer confidence in these areas. For example the retail activity and number of transactions being received are both increasing. A factor that is expected to keep improving consumer confidence in Thailand is the recent reduction in VAT from 10% to 7%. Lesley Cartmell, Far East fund manager at United Friendly, says there were signs of improved consumer confidence throughout the region, particularly in car sales in Hong Kong, Malaysia and Taiwan and in property sales in Singapore, Hong Kong and Thailand.
She says: "This is primarily because the stock market is stronger and unemployment prospects are not being considered as bleak as they were six months ago.
However, Japan and China are not spending as rapidly which is a direct reflection of slower economic recovery.
Cartmell says Hong Kong remains relatively strong, primarily because it did not fall to the same depths of recession as other areas.
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