FinanceAsia poll delivers verdict on subprime impact

A readers' poll reveals cautious optimism about Asia's economic prospects, but nearly half of all respondents believe the subprime crisis could lead to a US recession.
This is clearly an inflexion point for Asia and the global economy. Over the past six to eight weeks, an information breakdown has led investors to panic, speculate that events will take a turn for the worse, and seize on any good news that comes from China or the mouth of Ben Bernanke.

To take the temperature of financial decision-makers in the region, we decided to poll our readership and get their views on the current subprime lending crisis û and how it would affect Asia. We emailed a list of questions to our readers at 3pm on September 4, and kept the poll open for exactly 24 hours. In that time, a total of 320 readers responded.

The first question asked whether the subprime crisis would lead to a US recession. A narrow majority thought that it would not û with about half (48%) believing that it would.

We then asked what impact the subprime crisis would have on AsiaÆs GDP growth. The majority of respondents (52%) said that it would slow AsiaÆs growth, but by less than a percentage point. The second biggest number of votes (37%) thought that ôit would slow growth by more than a percentage point, but would not cause a recession in Asiaö. Only 6% thought it would lead to a recession in Asia and only an optimistic 5% reckoned it would have ôno impactö on Asia.

A bullish note, however, emerged from the next question. We asked whether the world was entering a bear market, and 67% said no.

Similarly, a cautiously bullish note emerged when we asked whether Asian equity markets û as represented by the FinanceAsia 100 or MSCI Asia û would end the year higher or lower than where they stand today. More voters reckoned they would end higher (56%).

Of those that thought the markets would end higher, 52% thought they would be higher by between 5.1%-10% by year end, and 31% by 5% or less. Of those that thought it would be lower, a third thought it would be down by more than 10.1%.

The next question got an overwhelming verdict. We asked whether voters expected interest rate cuts in the US this year. A massive 84% said yes. We then asked these readers to predict the size of the cut. A 50bp cut was the view of 56%, while 29% reckoned there would only be a 25bp cut. The remaining 15% opted for cuts of 75bp or more.

With the level of the yen being an important reflection of risk appetite û thanks to the yen carry trade û we asked what would be the strongest level that the yen would reach versus the US dollar in 2007. The result suggests a long yen position would be a wise trade: the mean average of the 261 forecasts we received was 112.3.

And AsiaÆs other major currencies? A colossal 93% thought the Chinese renminbi would appreciate versus the US dollar in the coming 12 months; 81% thought the Indian rupee would appreciate in the same time period; and 65% the Korean won.

On a more negative note, a slim majority of respondents (51%) thought the subprime crisis would lead to job losses in AsiaÆs financial sector; and a majority (62%) also thought it would lead to the failure of a financial institution (such as a hedge fund).

Respondents weren't upbeat either about regional M&A prospects, with 65% forecasting a slowdown in Asian M&A in the coming months.

But perhaps the most interesting question was saved for last, and it (again) revealed an underlying (albeit cautious) optimism. We asked respondents how they would invest $1 million tomorrow on a one-year time horizon, and gave them six options: which ranged from the bullish to the highly defensive. On the defensive side was cash (23% voted for this), and gold (10%). However, on the more bullish side, 46% said they would buy blue-chip Asian equities, and 11% Chinese real estate. Going long Japanese yen got the second lowest number of votes (8%).

And the lowest number of votes of all? Buying American real estate (2%).

All in all, my own interpretation of the results is that most respondents remain cautiously bullish on Asia, and highly confident of an interest rate cut saving the day in the US. But the poll also indicated we should expect some turbulence along the way û such as, in a similar vein to LTCMÆs 1998 collapse, the failure of a hedge fund. We should also not be surprised by a minor slowdown in the regionÆs growth, and somewhat worryingly, a US recession would seem to hang in the balance. Nevertheless, the message coming from our readership seems to be æbuckle up, but stay long AsiaÆ.

It should be admitted that all polls have a limited shelf life, and this one could be more limited than most. Indeed, as more information emerges in the next six weeks, views could change dramatically.
¬ Haymarket Media Limited. All rights reserved.

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