The MSCI Asia Free in US dollar terms ex-Japan Index is up 11.60% over the year to 29 March 2002, a...
The MSCI Asia Free in US dollar terms ex-Japan Index is up 11.60% over the year to 29 March 2002, as growth prospects for economies have improved significantly since the beginning of the year.
Michael Russell, director and group economist at City of London Investment Management, says countries that have made the most progress in terms of corporate restructuring and economic reform in recent years will drive regional recovery. This will be led by Korea, although all economies should benefit from the US upswing in 2002 in varying degrees.
He says: 'Taiwan should be another beneficiary, with the economy forecast to rebound strongly from last year's deep recession, spurred by a revival in technology spending in Western economies.
'China also stands to gain from recovering demand in major overseas markets; domestic-driven growth will be an even more important factor in determining economic performance in Korea and will differentiate the high-growth economies from the rest of the pack.'
According to a recent forecast from the region's Ministry of Finance and Economy, Korea's economy will grow 3% in the first half of this year and accelerate to 5% in the second half, to give growth for the full year of 4%, up 2.9% from last year.
However, Russell says that unlike previous recoveries, robust domestic demand is expected to be the engine of this year's upturn.
He says that buoyant consumer confidence and construction sector investment should lead the rebound in 2002, after higher private consumption set the pace last year, when low interest rates and stable employment provided a favourable backdrop for consumer spending growth.
Any pick-up in exporter growth, which now seems increasingly likely given signs of renewed vigour in the US economy, should help reinforce domestic demand, according to Russell.
He says that while exports should show a modest improvement in year-on-year terms, the global economic recovery in 2002 is expected to be mild, so the main support for the Korean economy should come from the domestic sector, providing the basis for a more durable upturn than in previous recoveries.
According to Mary Davis and Kathleen Stephansen, analysts at Credit Suisse First Boston (CSFB), a rebound in Asian ex-Japan capital spending looks set to outperform that of the US and Europe during the second half of the year, although Asia's heavy dependence on electronics makes its recovery a volatile one. Davis and Stephansen say that the corporate sector has spent the past few years restructuring balance sheets and reducing leverage. In addition, they say that manufacturers tend to have short depreciation cycles, especially in tech, setting the stage for pent-up demand in investment.
They say: 'The shortfall in investment, coupled with high savings rates and strong balance of payments positions, create an environment conducive to a rebound in investment demand, once the export-demand trigger kicks in and excess capacity is absorbed.'
MSCI Asia Free ex- Japan Index is up.
Korea's economy will grow 4% over the year.
Spending looks set to outperform US.
HL and Liberty SIPP slowest
Lifetime and annual allowances
'IFAs bore the brunt'
'Recovery or boom'