CLSA's very own McGuru, Dr Jim Walker moved back to Hong Kong last week, and despite a few of his computers going missing on the move, is in fine fettle, and fortunately, is mega-bullish on Asia's prospects.
Indeed, like Timothy Moe's return to Asia as Goldman's strategist (leaving a US hedge fund), Walker is yet another high profile old Asia hand who has decided the time is ripe to return to the Pacific-Rim.
Walker, who had previously based himself in Scotland, is CLSA's chief economist, although many would say he is CLSA's chief research asset. His views carry great weight. He was regarded as the first to call the Asian crisis, and as he says "I left Asia in 1998 and I feel I have come back just as the Asian economies are about to pick up."
Indeed, he adds: "Most people would view me as one of the biggest bears on Asia, based on my views in the 90s, and so for me to now say that Asia ex-Japan will become the engine of global growth is unusual."
Put simply, Walker is mega-bullish about what he sees in Asia overall. He has released a new piece of research 'Growth moves East' in which he states that Asia is going to enter a new growth phase based on a domestic boom in consumption; low interest rates; rising confidence among Asians; and that this will drive world growth and commodity prices. He thus advises you to go long Asia and long commodities.
Since 1997 he says much has changed. Interest rates have been liberalized and their levels are much lower and this is discouraging saving in Asia. Instead, Asia is pursuing a domestic consumption-boom.
Prior to 1997, government's encouraged high savings and these were channeled into poor investments. "I expect the next round of investment in Asia to be of a much higher quality," says Walker. "Capital goods will be sucked in again - meaning a return to trade deficits - but this time the investment will be used more intelligently."
He says it will be market-driven, not government-driven. It will be backed up by very liquid banking systems across the region, and a return in confidence. "When confidence swings upwards it becomes self-reinforcing," he says. He notes confidence is already very high in Korea, and is on the up in Thailand and Malaysia, "and very definitely in China."
But can Asia drive the global economy, now that the US is faltering? Walker believes yes. He reckons the size of Asia's economy is underestimated by statistics, thanks to the prevalence of large underground economies. He believes - based on past research - that non-Japan Asia's economic size is actually 50% larger than reported statistics state. That makes non-Japan Asia at $4.5-5 trillion economy and makes its half the size of the US and bigger than Japan.
He believes a booming Asia will be good for the world and particularly for commodities prices, because periods of Asian growth are associated with an increased use of commodities. That's because Asians still need to buy 'real' goods such as washing machines, while booms in the US see more spending on intangible services that use less commodities in their output.
Already he sees a number of positives. He views rising dividends among Asian companies as a positive sign - "normally dividends rise in times of increasing confidence".
Walker admits the coming boom is in its fledgling stages. He believes a good leading indicator of whether he is right will be the increased import of capital goods in the coming months and the return to trade deficits across the region.
"We should treat these trade deficits with joy, not anger," he says.
It's not all a bed of roses, however. He doesn't feel Hong Kong, Singapore, the Philippines and Taiwan will necessarily gain as much from the coming boom as China, India, Korea, Malaysia, Thailand and India - but as he points out, that's a loss for 100 million people but at the expense of a bloc that comprises 2.8 billion.
He says he is making a few assumptions. He assumes, for example, that the Fed Funds rate will be at 1.75% by the end of the second quarter in 2003 and that the 10 year treasury will end 2002 yielding 4%. He expects the dollar-yen to trade between Y120-130 and for US growth to be no better than 2-3% for the next two years, with Europe weaker and Japan slipping back into recession.
He doesn't know what will happen if the US invades Iraq.
Meanwhile, his one concern is Asian government's have built up debt. However, he forecasts that the next downturn won't happen for seven years and that will give Asian governments' ample time to put their fiscal houses in order.
If you have views on Dr Jim's forecast, please email [email protected]