Exports from Asia are beginning to soften, creating a threat to growth rates in the region. Kirs...
Exports from Asia are beginning to soften, creating a threat to growth rates in the region.
Kirsteen Melandri, fund manager at Threadneedle, says: 'Asia seemed to be well on the road to recovery but now faces the prospect of a relapse as its neighbours are looking distinctly unwell.
'The results of Asia's recuperation are evident in the economic data over the past few quarters. This was driven by a recovery in exports and the strength of domestic demand across a number of regional markets, notably Korea and Thailand.'
Melandri believes China has also moved into top gear and is now a major driver of intra-regional demand. However, she says: 'The region is facing a renewed challenge as the key markets for its products, particularly information technology, are struggling. Export growth rates are beginning to soften as a result. The question is how the Asian consumer will react to this weak external environment. An increased propensity to spend and easier availability of credit, coupled with historically low interest rates, means the consumer may provide more of a support for growth than in the past.'
But Asia is not being given the benefit of the doubt. 'Concern over prospects for growth in the major markets has mounted at the same time as risk aversion has risen because of global security worries,' Melandri says. 'This has resulted in heavy foreign selling across the region, particularly in markets and stocks in which investors made profits earlier in the year.
'Asian assets are currently very attractive. Structural improvements are not reflected in the equity markets as the region is caught up in the global sell-down. Asia has become a net creditor to the rest of the world as reserves have been rebuilt through current account surpluses. Corporate governance and shareholder value has also been a focus for some time.'
The extent to which the Far East ex-Japan equity markets are still sensitive to the strength of the export market is shown by the impact of the recent West Coast docks strike in the US, according to Gayle Schumacher, head of research at Coutts.
Ships from the Far East were stranded on the high seas when the powerful dockworkers union staged a lockout to protest against increasing technology. The action caused a huge jam in terms of Pacific exports until president Bush intervened to call for an 80-day cooling-off period.
The problem could return to affect Far East exports once that period is over, according Schumacher. 'In the past, the management and union have often failed to come to an agreement,' she notes.
Although the Far East is dependent on the US, it is becoming less so, Schumacher says, while other markets, such as Europe, are becoming more dependent.
In the past three to four years, domestic demand has emerged in the region, she notes, providing a cushion against the export cycle and supplementing growth. At the same time, the Far East has become increasingly competitive and is winning US market share from Europe.
China is a major factor in this. Many global firms are moving production to the country because of cheap labour costs.
The recent terrorist bombings in Bali will affect areas dependent on tourism, she adds.
Impact of Bali bombing will be short lived.
Intra-regional trade increasing.
Asian demand rising as a driver of markets.
br> Bear points
Asia-Pacific region still very export dependent.
Global export market suffering.
US dock strike impacted exporters.
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