Posted by: Bruce Einhorn on October 27, 2008
Another day, another bloodbath in Asian markets: Japan’s Nikkei index was down 6%, Hong Kong’s Hang Seng off by over 12%, Shanghai down by more than 6%. With tolerance for risk plunging, Asia is just too dicey a place, no matter how much the region has changed in the years since the Asian financial crisis of 1997-1998. And there’s nothing like the prospect of European countries – the Ukraine is the latest – turning to the IMF to remind invests of the bad old days when Asian countries were the ones asking for bailouts. No wonder, then, stocks in the Philippines (hit hard by the crisis a decade ago and traditionally the weakest economy in the region) today plunged over 12%, despite a move by authorities in Manila to halt stock trading temporarily.
And unfortunately for Asian countries, the news is likely to get uglier. Analysts at Standard Chartered point out in a Friday report “Asia has the highest trade/GDP exposure of any Emerging Market region.” Reliance on exports to the U.S. and other developed countries doesn’t translate into strong equities or currency markets when the West is in recession. “In good times, this [trade/GDP exposure] means that the Asian region significantly outperforms. However, in more challenging economic times, this means that it underperforms.” That’s why Asian markets are doing so poorly – and why they’re likely to keep heading south. “The U.S. is the center of global liquidity and as that liquidity is reduced so markets outside of the center get hit proportionally harder,” the Standard Chartered analysts write. “In this context, Asian equity markets have led the way and Asian currencies are only playing catch up, suggesting that they still have some way to go.”