Posts Tagged ‘Asia Economy’

China’s slowdown in manufacturing activity and other vulnerabilities throughout Asia have weakened the region in the face of the European crisis. Its position as the stronghold against Europe’s devastating situation and the U.S.’s disappointing recovery is fading away.

Pascal Lamy of the World Trade Organization said Asia is becoming more and more “interconnected with the rest of the planet and I don’t think this relative immunity will be forever.

“I would expect, given what is happening in other parts of the world economy, this region to be more affected than it has been so far,” he continued.

And reality is confirming his suspicions at rapid speeds. Individuals and organizations are calling on the nations’ governments to boost their economies before the global situation worsens.

“China’s economic slowdown is more severe than expected. Export orders are continuing to fall, which is definitely related to Europe’s debt crisis,” said Citic Bank International Hong Kong’s Liao Qun. “Uncertainty in Europe is high. China needs to move faster and more aggressively to speed up loosening of its monetary and fiscal policies.”

 

Asian businesses are feeling more secure thanks to lessons from the global financial slump and recovering U.S. banks. Analysts have admitted that while an all-out Eurozone crisis may affect demand for Asian products, exporters throughout the region are less likely to suffer as much as they did in 2008 when Lehman Brothers collapsed.

“The importance of trade finance to the global economy is better understodd now than in 2008,” explained Mark Williams of Capital Economics. “One of the factors that contributed to the recovery in 2009 was the $250 billion of trade-finance guarantees announced… In the event of a second global financial crisis, future guarantees are likely to be forthcoming.”

Often compared to the oil that greases a machine, trade finance is a key component in an economy. EU banks’ exposure to it in Asia is surprisingly high, relative to their loans in the region. Williams pointed out, however, that the Bank of International Settlements revealed that Eurozone banks are responsible for a mere 2.3% of total credit in the emerging Asia. Meanwhile, they have a 47.3% share of lending in emerging Europe, and 17.1% in Latin America.

The recent developments in trade finance have encouraged banks to increase interest rates.

“The reality is spreads have gone up fairly significantly- almost to the 2008 peak levels- over the last six weeks… But the higher spreads are here to stay,” said Ravi Saxena of Citibank.

World Bank country director Annette Dixon stated that Thailand is still an investment hotspot at a press conference this week.

“Globally and regionally, Thailand remains an attractive investment destination. We won’t expect a lot of business to relocate,” she said, adding that the government should work to support the flood recovery efforts as opposed to populist policies.

The Bank of Thailand has been urged to reduce the policy rate to strengthen the economy in the past. Dixon said that given the high volatility of the world’s economy, Thailand “should be extremely prudent.”

Ekaterina Vostroknutova, a senior economist for East Asia and the Pacific region, explained that developing countries in the sector are currently preoccupied with growth, and have put less focus on inflation, thus ignoring policy rates.

“Central banks in Asia are waiting to see how things unfold,” she said.

At Shanghai’s 23rd International Business Leaders’ Advisory Council (IBLAC), over 500 government officials were told that the city is on its way to becoming a regional base for international trade within Asia’s economy.

“It’s the beginning of an Asian century,” Maurice Greenberg, the former chairman of IBLAC, said. “Shanghai is not only the major port of entry in Asia, but also the world’s trade center- with its population, talent and business environment, it has everything necessary to become a leader, not only in Asia, but the world.”

Numerous VIPs agreed, stating that the goals would be reached by 2020. According to former U.S. secretary of commerce Carlos Gutierrez, as well as Shanghai Mayor Han Zheng, the city will undoubtedly become a world leader in business, finance, shipping and trade.

“Shanghai has transformed into a modern metropolitan city from one that was traditionally industrial and commerce-based,” said Mayor Zheng. “Looking to the future, we plan to build the city into a market with the capacity to allocate resources to the world.

“In order to do so, we must insist on building a market driven by innovation, and developed strategically.”

Asian shares saw a dramatic increase following this weekend’s meetings in Europe, which resulted in “good progress.” According to European finance ministers, the Eurozone plans to boost its $610 billion rescue fund in an effort to draw investors and convince markets that it is indeed capable of protecting floundering countries such as Italy and Greece.

Few real details were released after the meetings, though. Investors have continued to focus on the yen, which has reached a record post-war high of 75.78 against the dollar. As a result, Japanese finance minister Jun Azumi has called for “decisive steps” to slow the currency’s dramatic rise, amid concerns that the yen will hinder the country’s export market.

Hong Kong and Shanghai both climbed this week as well, as improved manufacturing data was released from China, but Europe’s crisis does not seem to have slowed. Debates are still common as the Eurozone struggles to find a solution for the economic issue without further provoking its richer nations, such as Germany, who have placed their limit after repeatedly bailing out the region’s weaker members.

“The mood of trading is generally optimistic that Eurozone policy makers will announce significant measures on Wednesday to bolster the bailout fund and resolve Greece’s debt crisis, while also supporting the region’s banks,” explained Stan Shamu of IG Markets.

In an effort to reduce, if not close, the gap between the dynamic region and major wealthy economies, nations throughout South-East Asia have combined resources to launch a fund of almost $500 million to build infrastructure.

According to finance ministers of Asean, the fund will support the building of roads, railways and other public projects, reducing the need for foreign assistance, and boosting regional economic integration with hopes of its completion by 2015.

Surin Pitsuwan, Asean secretary-general, said “Our community is now being built with speed. This is a milestone. The time for donations, the time for just gifts, is over. We have to be very innovative, we have to be very collaborative in our approach.”

The region has its fair share of famous buildings and businesses, and has seen impressive growth rates, but it lacks in access to major highways, railways, clean water and electricity.

Based in Malaysia, the Asean Infrastructure Fund will initiate with $485.2 million, with hopes of financing six projects every year. The fund predicts that by 2020, it will offer $4 billion in loans, and will be worth a total of $13 billion.

Countries such as China, Japan and South Korea have shown interest in joining the fund, but the region intends to keep the project internal, at least for now.

Recent analysis shows that Asia-focused hedge funds have brought in around $500 million in the month of August, raising the market’s total income to $7 billion in 2011. Eurekahedge, the hedge fund tracker based in Singapore, stated that this year has exceeded last year’s inflow by $3 billion.

The study went on to indicate that Europe’s hedge fund industry gained $2.8 billion in August, while funds in the U.S. reached $.8 billion.

Total Asian hedge fund assets tracked by Eurekahedge increased to $136.1 billion by the end of the summer, reaching their highest level since December of 2008. Despite its peak of approximately $176 billion in 2007, the industry is making a remarkable recovery in the face of the global financial crisis.

High profile hedge funds, such as Morgan Sze’s Azentus Capital and others launched by Carl Huttenlocher and Seth Fischer, are projected to have significant impact on the industry’s assets throughout the remainder of the year.

 

Like many other financial firms, Morgan Stanley has noted the withdrawal of international investors from stocks in Asia as the economies in the region begin to falter.

One example of this is South Korea, as the won continues to decrease in value. Morgan Stanley’s growth estimate for the nation has been lowered from 4% to 3.6%, while Deutsche Bank AG has lowered its expectations for China’s expansion as well, claiming that the economic crisis throughout the rest of the world will lessen the demand for Asian exports.

“Reported downgrades of economic forecasts reduced appetite for regional assets,” explained Lee Jin III of Hana Bank. “Stock market declines affected Asian currencies including the won.”

Finance Minister Bahk Jae Wan has confirmed that inflation issues continue to plague South Korea and that the government plans to use “all possible” measures in an effort to stabilize prices. For example, the Bank of Korea left interest rates unchanged for a second month in a row, following three major increases this year.