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rffrydr
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rffrydr
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rffrydr
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 Posted: Sat Nov 17, 2007 8:44 am Post subject: |
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Liquidity can turn to quagmire in tradeflows too--if not as fast:
| Quote: | Asian decoupling
Published: November 6 2007 09:34 | Last updated: November 6 2007 19:48
It is turning into a good week for proponents of Asian decoupling. While fear stalks financial markets in the US and Europe, Shanghai hosted the world’s most heavily subscribed initial public offering – $440bn of investment chased $9bn worth of PetroChina stock – and Alibaba’s IPO across the border in Hong Kong more than doubled on its debut.
The case for decoupling rests in part on Asia’s strong growth and surging intra-regional trade. For financial markets, the assumption is that growing pots of cash – be it from sovereign wealth funds, pensions or high savings rates – can comfortably offset more fickle foreign portfolio flows. True, regional funds provide a healthy buffer against foreign outflows. But, as demonstrated by Japan, savers become reluctant to move their deposits out of banks if sentiment changes.
Trade is the weakest link in the decoupling debate – since external shocks quickly ricochet through Asian economies via exporters which may be forced to cut jobs. Much of the intra-regional trade is just processing: Asian manufacturers still rely on Americans to buy their final goods. Asian consumption is patchy. Final demand in China, the biggest home for regional exports, accounted for just 6.4 per cent of total Asian trade in 2005, or slightly less than a quarter of the US contribution, according to the Asian Development Bank. Royal Bank of Scotland notes that Asia’s exports as a proportion of gross domestic product have risen from 39 per cent in 1997 to 51 per cent last year, partly reflecting undervalued currencies and export incentives.
Even financial markets are not immune, if only because strong performance attracts (fickle) foreign capital. And, partly due to trends such as outsourcing which link Asian profitability to overseas business cycles, Asian and US stock markets are more correlated than they have been in 30 years, according to Citigroup. Sure, neither PetroChina nor Alibaba could have happened on Wall Street this week. But that is not to say Asia will keep its fizz if the US does slowdown.
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rffrydr
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| Posted: Sat Nov 17, 2007 8:37 am Post subject: |
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The new religion codified courtesy of Barclays:
http://www.ft.com/cms/s/0/20a4b6de-9154-11dc-9590-0000779fd2ac.html
| Quote: | The only way out of this dilemma is to change the interaction between Asian and US monetary policy. International agreement is required, whereby Asian policymakers allow currency appreciation against the dollar and, in so doing, adopt less stimulative domestic monetary stances, helping to cool the inflation in world resource prices. Since such an agreement seems unlikely, the outlook for US financial asset markets is poor.
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And, as with all codes, the world has moved on: Y109 vs. Y120 from summer. The only "agreement" is that the US consumer still matters.
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rffrydr
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