For a fair few months now, we have been hearing from the prophets of doom that Asia faces the prospect of heading towards another financial crisis, on the back of a potential economic downturn in the United States and problems in Japan.
The more optimistic among us can be thankful then that not everybody is singing from the same song sheet. One of these is Steven Xu, director and senior economist with SG Securities in Hong Kong, who was ready to spread a positive message at a press briefing to launch SG's 'Quarterly Economic Review', entitled 'Looking beyond the current gloom'.
Like his colleagues, Xu sees hope, particularly for China, South Korea and Singapore, firstly down to the belief that the US is already showing strong indications of improved performance and because of positive structural foundations that underly the economies of certain parts of Asia. SG feels that an Asian upturn may filter through as early as the fourth quarter this year.
"We are starting to see the end of the US interest rate cycle and believe that rates will begin to rise next year as the economy strengthens," Xu says. "It may take between two or three months for Asia to catch up as the US cycle changes completely but by the fourth quarter we believe the picture will be a lot brighter.
The principal reason for the bank's confidence stems mainly from the US situation where consumer spending is rising and also because corporations are raising cash from the bond markets at record levels. In May this year close to $80 billion in investment grade paper was issued, double the amount that was being raised at the tail end of last year. SG says this figure is well beyond what is required to refinance existing debt and we may soon see good growth in capital spending as soon as profits stabilize.
"We are forecasting that US corporate profits will stabilize in the third quarter before surging strongly in the fourth quarter," predicts SG's chief economist Manu Bhaskaran in the report. "Once this happens, orders for capital goods are likely to rise as well, translating into rising export orders for Asian producers."
So, which Asian countries will be best placed to exploit this unexpected turn of events, as well as achieving growth through their own actions? As far as the latter goes, Xu sees China continuing along the growth path it has been treading for the last couple of decades.
"China is on a roll at the moment, consumer expenditure is rising, growth is at around 8% a year and we see that continuing for the next few years," asserts Xu. "Changes are beginning to take place their from the bottom up. Investors want a greater degree of freedom and the pressures they are exerting will continue to build up as long as state-owned ventures continue to make up the lion's share of market capitalization.
"China has been undergoing 23 years of economic reform but is now facing a defining moment," Xu stresses. "The next step forward will come from private businesses who are demanding more access to capital and greater assurances about that capital, and private sector consumers who are becoming more powerful."
In its dealings beyond its own boundaries, Xu feels there are enough signs to suggest that China is becoming more open to foreign countries. "Winning the bid for the Olympics is a signal that China wishes to become more integrated with the global economy," he says. "As for tax reforms to encourage foreign companies to set up in China, these will not happen overnight but will at some point in the future. Nothing is going to happen in a straight line fashion, but some of the government agencies that are the legacy of a planned economy will not be around in a few years, and the state will need to look at how the market will work to replace them in the future."
As to elsewhere in Asia, the report outlines that Korea is expected to perform well because of a rise in domestic consumption, fiscal boosts and diversification away from the electronics sector (previously the major source of exports).
Singapore's performance in the second half is also predicted to do well due to new plant start-ups and a cyclical recovery in construction. However, SG sees some warning signs due to a weakening in the Singapore dollar, caused by rising expectation of a devaluation in the Malaysian dollar, one of the country's major competitors for exports.
Taiwan could be another growth centre, although much of that depends on what happens in its political elections at the end of the year. SG expects though that a new administration may be elected, one which will see a change in attitude to China and which may then allow Taiwan to reap the benefits of closer economic ties with the mainland.
Growth is not likely to be a region wide phenomenon however. Indonesia and the Philippines both face major political and financial difficulties which limit their chances to exploit any opportunity for growth. Nonetheless, if, as SG forecasts, there is light at the end of the tunnel for just a few of the region's economies, this is a more favorable state of affairs than we have been hearing in recent times.
