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Investment News and Commentary from Emerging Markets in Asia - China, India and ASEAN

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2point6billion.com discusses business and investment news rising from the geopolitical relations of China and India, and the interactions these two countries have with the rest of emerging Asia.

Monthly Archives: March 2009

Asia down even as Japan announces plans of third stimulus package

Most Asian stocks fell today, breaking a rising trend, amid concerns that government stimulus plans worldwide will take longer than some investors expect to revive global growth. Echoing the downtrend the Asian development Bank also lowered growth expectations for Asia from September’s estimate of 7.2 percent to 3.4 percent this year.

The negative sentiments however came amidst news that Prime Minister Taro Aso is expected to release Japan’s third stimulus plan. The new package, is expected to include at least ¥10-20 trillion (US$103-206 billion) in spending and tax cuts and marks the latest effort by Aso’s unpopular government to perk up growth and disgruntled voters ahead of crucial general elections. Japan has already announced a combined spending of ¥12 trillion (US$123 billion) between its previous two stimulus packages.

In addition to the stimulus package, Japan is also trying to boost exports and revive the Asian economy by lending money to neighboring nations and the Asian development Bank. Japan has till date loaned millions to Vietnam, Indonesia and the Philippines to help them out of the financial crisis. It is also planning on increasing the amount underwritten for Japanese companies if importers of their goods in emerging nations fail to pay for the products in time. Japan is additionally expected to announce an increase in its official development assistance to around ¥2 trillion from ¥1.5 trillion during the G20 meeting later this week.

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Asia to see increased, lower value M&A deals this year

M&A activity in Asia is expected to increase over last year as more companies said they were looking to expand in the face of healthy valuations. In a PricewaterhouseCoopers survey, 42 per cent of the 215 Asian financial institutions polled forecast that they will do a deal this year, up from 38 per cent in last year’s survey which was conducted in the beginning of 2008 before the region felt the full-force of the financial crisis.

However analysts warn of the optimistic numbers, saying that although the number of deals might increase, their valuations will fall to 2005-2006 levels as numerous smaller deals will be concluded in an uncertain market. In 2005 deals worth US$38.7 billion were concluded while in 2006 deals worth US64.5 billion were done. Asian financial institutions concluded deals worth US$99.1 billion last year and US$125.9 billion in 2007.

Among Asian financial groups, Taiwanese and Chinese companies are the most likely to undertake merger and acquisition activity in the next 12 months while Indonesia and Vietnam have overtaken China and India as the most popular places to do deals, the Financial Times reported.

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Asian nations get greater say at G20

Asia is definitely coming of age. Next week at the G20 summit in London she will sit on the global high table to decide on policies to lead the world out of the economic crisis. Asia will prove that she can be one of the lead architects in changing the way the world works.

Represented by economic behemoths India, China, Korea and Indonesia- Asia will make herself heard on financial and political matters.  While Asia’s economy has not suffered as hard a blow as her western neighbors, job losses and a drastic fall in exports are threatening their slowing economies. Asian nations are determined to act collectively in boosting aid and bringing back trade to pre-crisis levels as soon as possible.

The difference during this G20 summit this time round is that Asian nations now have the economic might to stand up and have their voice heard at global summits like the G20.  While many western economies have decelerated into a recession, the Asian economies of China, India and Indonesia are still expected to show reasonable GDP growth this year of 6.8 percent, 5 percent and 4 percent respectively. Additionally, China has the world’s largest currency reserves, ahead of Japan, with India, South Korea, Taiwan, Singapore and Hong Kong also ranking in the top 10.

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Are Asian economies bottoming out?

A recent rise in shipments for Taiwan and Singapore and a growth in exports for Vietnam, South Korea and Thailand have lead analysts to think the worst for Asia might be over. The decline in exports of most Asian nations eased in February as regional trade resuscitated for South Korea, Taiwan, Singapore and Vietnam.

Nonetheless, economists warn of being over optimistic. The trade numbers could be misleading due to several factors. One reason could be that the week long lunar new year holiday celebrated in Korea, China, ­Taiwan and Vietnam fell in January this year, rather than February like last year. Another reason could be that the effect of stimulus packages, export incentives, lowered interest rates and duties is finally paying off as companies increase liquidity. Currency fluctuations are a third reason economists feel the deceleration in the drop in exports should not be taken too seriously. Falling Asian currencies like the won & rupee have been further aiding exports. In local currency terms, Korean exports rose 23.6 per cent in February. Experts also warn that there has been an improvement in Korean exports due to large Korean shipments ordered much before the crisis having reached their ports.

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Asian economies tackle unemployment, recession and inflation woes

While economic soothsayers predict bad news for Asia at least for the next few months, finance ministry’s across the region are implementing measures to shore up their economies. From tacking unemployment in Thailand to the foreseeable recession in Malaysia, the governments are doling out not only financial resources but also trying to shore up consumer sentiments.

A glimmer of good news from the region came from South Korea whose government announced a 17.7 trillion won (US$13 billion) stimulus package to buoy jobs and infrastructure. The Korean finance ministry said this package which will add to the already allocated US$51 trillion won (US$27 billion) and will help shore up the economy by 1.5 percentage points and help create 552,000 new jobs.

Meanwhile, the rest of Asia didn’t report a very optimistic short term outlook. The Singapore government whose financial services industry is highly coupled to the west and whose economy is already in recession said the economy would bottom out in the next six months.

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Is this the beginning of the Asian Century?

Does the economic crisis have the strength to turn the world on its head? Actually see the emerging economies of India and China develop into confident nations that will lead the world in the Asian century or will the massive resources and educated talent pool of the United States help it to continue to wield its power in the international league?

Its a debate with valid opinions on both ends, however numbers tell another story. Economists globally seem to think that emerging economies will come out of this crisis sooner and stronger than the developed economies. Demonstrating their stalwartness, large companies in these economies are already buying more developed world companies then two years ago. Emerging-to-developed market deals represent 47 per cent of the developed-to-emerging total, compared with 23 per cent in the second half of 2006.

Further, while the richest economies are shrinking, the emerging giants are only slowing. The worst global crisis in 80 years is expected to contract the U.S. and Europe’s GDP by three percent and Japan’s by six percent, while the Indian economy is expected to decelerate to five percent and the Chinese economy will slow to seven percent.

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S. Korea – Thailand sign entertainment MOU

South Korea and Thailand recently signed a memorandum of understanding to mutually develop the two countries’ entertainment industries. Recognizing the huge demand for varied digital entertainment, the two Asian nations decided to work together to boost the industry.

The MOU was signed by South Korea’s International Culture Industry Exchange Foundation, Thailand’s Software Industry Promotion Agency and Thailand’s Department of Export Promotion (DEP), with an aim to increase their bilateral entertainment trade in the film, music and animation sector, Xinhua reported.

While global sales and exports of goods have dipped, the Asian entertainment industry continues to witness an upswing. Available on a range of digital hi-tech formats, entertainment through mobile phones and the internet continues to grow even as these new formats bring personal entertainment to more people. According to a PricewaterhouseCoopers industry report, In Asia-Pacific, new multiplexes and digital cinemas will fuel box office spending, which will rise at a CAGR of 8.5 percent to reach US$10.4 billion in 2012. Additionally, rising broadband penetration will drive online gaming in general and MMOGs in particular, especially in China. Across the region, online games will increase at a 13.3 percent CAGR, reaching US$5.6 billion in 2012.

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