Palin, with her meat loaf and rifles, reminds us that there are two hopelessly incompatible Americas
Published: September 2 2008 09:26 | Last updated: September 2 2008 20:47
Forget the subtleties of the decoupling debate – Asia seems to be reverting to type before investors’ eyes. This week alone has seen riots, threats of intervention to support vulnerable currencies, cuts to growth forecasts and gyrating equity markets. Such madness was thought to be consigned to the tail end of the last decade. Even a year ago, as the western world slipped into the first subprime cracks, Asia was supported by the view that the region could now look after itself.
Yet Asian equities are the worst performing stocks on the planet year-to-date. Most markets have fallen by between a quarter and a fifth. For more open economies, weakening exports are to blame. Singapore’s non-oil exports fell year-on-year for the third consecutive month in July. Next year, Hong Kong’s economic growth could well be half the 6.7 per cent of 2007. In countries such as Thailand and Malaysia, too-low real interest rates are fuelling inflation, which in turn is hurting consumption. Korea is suffering from both problems, as well as by excessive private sector indebtedness.
As worrying as all that appears, the region is in far better shape than it was during the turmoil of the late 1990s. (Only Vietnam, with inflation near 30 per cent, is moving worryingly close to basket-case territory.) Foreign exchange reserves are higher and overseas debts are lower. Consensus earnings growth expectations for Asia ex-Japan are still about 7 per cent for next year. What is more, falling commodity prices, particularly oil, may well boost exports and help Asian central banks keep a lid on inflation without crimping domestic demand.
Does that make equities a buy at these depressed levels? Certainly, if the good old days of Asian investing have returned, any improvement in global sentiment will be magnified across Asian markets. Trouble is, at about 15 times consensus earnings for this year, Asian equities ex-Japan are not screamingly cheap and expectations for double-digit profit growth look a tad optimistic. Welcome back the rollercoaster ride of high-risk, high-return Asia.