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Good news from Asia, says Bloomberg.com. After a few tricky days last week a recovery is underway, with the region’s big banks and exporters pushing indices higher. This makes sense given that the news from the region is almost universally bullish.
Consider Korea. In the third quarter of last year, gross domestic product grew at 1.9% – the “fastest” since the last quarter of 2003 – and numbers for the fourth quarter are expected to show exports are at record levels and consumer spending on the up.
It’s the same across Asia, says Aberdeen Asset Management. Until recently, the recover story was all about exports – now it is widening as spending picks up. That makes stocks in “thriving” markets, such as Singapore, Malaysia, Thailand and China (accessed via the Hong Kong exchange), all look like good bets. Goldman Sachs is bullish on Asia too, says the Daily Mail. Analysts at the broker expect the best returns in 2006 to come from the region’s equities.
All this “naturally makes all contrarians nervous,” says Philip Coggan in the FT. And for very good reason. “This cycle has happened may times before”; enthusiasm for growth prospects of developing countries is fast followed by disappointment “as economic crisis leads to devaluation and default”.
There are arguments to be made that “it really is different this time”. Richard Cookson of HSBC notes, for example, that today’s emerging markets have current-account surpluses, lowish levels of debt and much better fiscal positions than in the past, all of which makes them “much less susceptible to flighty capital than they were”.
This may be true, says Coggan, but “what is in the price”? Debt spreads (the premium you get paid for holding emerging-market debt over US debt) are at historical lows, and having returned over 30% last year, equities in these markets aren’t cheap. Asia is still far from risk free, but right now “investors are not being paid much for taking risk”.
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Annunziata Rees-Mogg
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