U.S. analysts still upbeat on Asia

U.S. analysts still upbeat on Asia

NEW YORK (Reuter): The "Year of the Rat" has turned out to be not so fat for Asian economies.

For the first time in a decade, a slowdown in exports raised doubts that the Asian tigers might be losing their economic prowess.

Compared with the first half of 1995, exports fell in China, and the growth rate notably flattened in four tiger economies -- Singapore, Hong Kong, Taiwan and South Korea -- as well as in Malaysia, Indonesia and Thailand.

At the same time, Latin American countries are pulling out of recession to post impressive year-on-year growth. Mexico stunned the market with a 7.2-percent rise in Gross Domestic Product (GDP) for the second quarter.

So, has the wheel of fortune turned?

Pessimism about Asia is premature, U.S. economists and money managers say. Even with growth rates moderating, Asia still stands head and shoulders above other world regions. Given a history of boom-and-bust cycles in the Latin American economies, the current recovery could be ephemeral, they say.

As long as Asians continue to squirrel away a hefty chunk of their income, U.S. investors will keep Asia ahead of other emerging markets in their long-term strategies.

Investment

Asia provides a textbook case of savings and investments, argues John Praveen, international economist at Merrill Lynch. "Higher savings lead to higher domestic investments; that, in turn, boosts GDP growth and attracts foreign investments."

Asian countries with an average savings rate above 30 percent are the biggest savers in the world. Between 1990 and 1995, Singapore residents saved around 48 percent, Koreans 36 percent, Chinese 39 percent and residents of Hong Kong 35 percent, he said.

According to International Monetary Fund (IMF) data, Asia is the only region in the emerging markets whose savings and investment rates as a percentage of GDP continued rising, Praveen said.

Because of the sound economic fundamentals, Asia received half of the US$207.4 billion in capital flows to the emerging markets in 1994. Latin America got a quarter, Praveen said.

With the trends of high savings and investments in place, Asia will lead the world in economic growth into the next century, he said.

For the next decade (1995-2005), the World Bank projects a 7.9-percent annual growth rate for East Asian countries, 5.4 percent for South Asian countries and 3.8 percent for Latin America.

Uncertainty

Ismail Dalla, president of Washington Asset Management, Inc, said the high level of savings and domestic investments provides a cushion for the impact of a cyclical slowdown, political uncertainty and currency swings.

The current export slowdown was brought on in part by the global glut of electronic goods and a collapse of semi-conductor prices, he said.

The countries that have moved up the value chain from sewing T-shirts to making computers became vulnerable to the whims of the markets in the industrialized world, he said.

South Korea, Singapore, and to a lesser extent, Taiwan, Thailand and Malaysia, were hard hit by the glut.

The adaptability of those economies to world market demand, however, will get them over this trough.

Recent political unrest in Indonesia and speculative attacks on the Thai baht have not triggered disinvestment or affected the ability of either country to finance their current account deficit, he said.

Current account deficits in the two countries result from the influx of huge foreign capital investments, whose reduction takes time as new export goods roll off the assembly line, Dalla said.

Asian countries also have large reserves to defend their currencies, he added.