Friday, October 03, 2008
For much of Asia, the last few months have been a bit nerve wrecking. While the dominos have been tumbling in US and Europe, Asians have been sitting nervously. The consensus was that this was the biggest global contagion since the 1929 Depression.
For almost everyone in Asia 30 years and above, we are sitting tight. Though the economic conditions in Asia are still relatively vibrant, at the back of our minds we cannot shake off the memories of 1997-2002 Asian financial implosion. No one dared to come out and say that Asia is different this time around.
Surely any substantive weakness in US and Europe will have its effects on most Asian economies. We have felt the tremors, but are still wary of a potential sledgehammer in the near future. Will it be coming down soon?
At the back of our minds, the balance sheet of most Asian economies have improved significantly since the 97 crisis. Is that sufficiently strong enough to weather the storm? Many Asian countries have the US as a major trading partner, surely that counts for something.
There are a few things which have evolved over the last 5 years. One, China's emergence as an economic power. Two, Asia's intra-trade have also grown substantially. Three, the US weakness is actually impacting less on the broader US economy and larely contained in property and financials.
The third point is very important. Many American companies are still seeing OK fundamentals because of globalisation (outsourcing) that has been taking place over the last 10 years, in particular over the last 5 years which has been at breakneck speed. Globalisation involves an increasing dependence on foreign markets. The outsourcing movement has also move a substantive part of manufacturing operations and processes in emerging countries.
There are many who incorrectly criticise China's stupendous trade surpluses. However, some 60%-70% of all China exports are actually manufactured by foreign companies and joint ventures operating in China back to other markets. They are not primarily China's own real exports that are home grown. China as a growing country have parlayed the buzzing economic activity to building infrastructure, thus its voracious appetite for commodities. China is at a stage where it can still ramp up infrastructure to sustain the economic growth.
Thus the ill effects on the broader American economy is not as bad as it appears. Most emerging markets, though affected, are not that dependent on America funding. Emerging markets' banks are relatively unscathed. While some weakness will be evident, it should not be paralysingly so.
Asians are scared to even dare mention that they are OK as they know how things were just a few years back. While its prudent to be cautious, we need not scare ourselves silly.
p/s photo: Dhini Amirnati Maulana