Good synthesis by Bettina Wassener of Asia’s relative strength, now and over the next decade.
(…)Put simply, the term refers to the theory that emerging markets — whether China or Chile — will become less dependent the United States as their economies become stronger and more sophisticated.
For much of last year, the theory held up. Many emerging economies had steered clear of investments that dragged down banking behemoths in the West, and saw nothing like the turmoil that began to engulf the United States and Europe in 2007. But then, last autumn, when the collapse of Lehman Brothers caused the financial system to convulse and consumer demand to shrivel, emerging economies around the world got caught in the downdraft, and the D-word became mud.
Now, the tables are turning, especially in Asia, where many emerging economies are showing signs of a stronger recovery than in the West. And economists here have begun to talk of the decoupling once again.
(…) But for the past couple of months, data have revealed a growing divergence between Western economies and those in much of Asia, notably China and India.
The World Bank last week forecast that the economies of the countries that use the euro and the United States would contract 4.5 percent and 3 percent, respectively, this year — compared with 7.2 percent and 5.1 percent growth forecast for China and India. Forecasts from the Organization for Economic Cooperation and Development that were also published last week backed up this general trend.
Major statistics for June, due Wednesday, are expected to show manufacturing activity in China and India are on the mend. By contrast, purchasing managers indexes for Europe and the United States are forecast to be merely less grim than before but still show contractions.
The crisis hit Asia much later. While the American economy began languishing in 2007, Asian economies were doing well until the collapse of Lehman Brothers in September. What followed was a rush of stimulus measures — rate cuts and government spending programs. In Asia’s case, these came soon after things soured for the region; in the United States, they came much later.
Moreover, developing Asian economies were in pretty good shape when the crisis struck. The last major crisis to hit the region — the financial turmoil of 1997-98 — forced governments in Asia to introduce overhauls that ultimately left them with lower debt levels, more resilient banking and regulatory systems and often large foreign exchange reserves.
Another crucial difference is that Asia, unlike the United States and Europe, has not had a banking crisis. Bank profits in Asia have plunged and some have had to raise extra capital but there have been no major collapses and no bailouts.
(…) “Asia is coming though this crisis with its banking system intact. Yes, some banks may not be making profits — but it is cyclical and not systemic.”
The lack of banking disasters also has meant that, unlike in Europe and the United States, Asian governments have not had to spend cash to clean the balance sheets of faltering banks.
Add to that the fact that companies and households in Asia are typically not burdened with the kind of debt that is forcing Americans and Europeans to cut back consumption and investment plans.
Asians are generally big savers; those in developing nations have limited health care and pension systems to fall back on. So they put aside cash for retirement, sickness and their children’s education, rather than maxing out multiple credit cards.
Paul Schulte of Nomura said this difference was leading to a long-term shift. Western nations and consumers will struggle for years to pay down debt — and in some cases face higher taxes as governments try to rein in their swelling budget deficits. Consumers there, he said, will thus spend less.
In developing Asia, by contrast, incomes are expected to rise gradually and savings rates to fall as improving health and welfare systems make the region’s fast-growing population less determined to save.
Taken together, Mr. Schulte said, this means Asian consumers, as a whole, will become more important in global terms — another example of how the region will become less dependant on the West.
Similarly, companies in developing Asian nations tend to have fewer debts — partly because the region enjoyed several years of strong economic growth.(…)
Asia’s generally lower debt levels also mean there has been no credit crunch of the kind that has handicapped companies and consumers elsewhere.
“Asia does not have a credit crunch. It has excess liquidity,” Mr. Neumann of HSBC said. “The banking system is stuffed with liquidity.”
This is benefiting Asian asset markets — from stocks to property — and is leading to a gradual “financial decoupling” from the United States and Europe, Mr. Neumann said.
“For the past two decades, equities markets have been driven by Western risk capital, not Asian investors themselves,” he said. “Now, you’re finding that Asian money is increasingly driving the market.”
Analysts at Merrill Lynch agree. In a recent research note they said the Hong Kong stock market, for example, had performed much better than markets in the United States, and property prices in the city have risen, partly because of capital inflows from mainland China.
