Investors betting on region, with its low debt, high savings
Reuters 30 December 2008
(HONG KONG) From healing credit markets to big government stimulus spending, evidence is mounting that the historic 2008 sell-off may be fading into the history books.
While few market players are bold enough to say that the worst is over for Asian stocks, which have lost about half of their value this year - a record in at least 20 years, the telltale signs that several markets may have bottomed out are becoming clearer.
Credit markets, which tend to lead equities both up and down, kept recovering even as stocks pulled back at year-end.
Narrowing spreads on US interest rate swaps, an important gauge of financial system health, are another encouraging sign.
South Korea’s severe dollar funding shortage for domestic banks - one of the key pressure points in Asia - has started to relent just as the won has bounced and Seoul stocks have led the rally in regional shares.
Central banks have slashed rates like never before, with the world’s two largest economies now with short-term rates at virtually zero. Governments are lining up massive spending packages, which are expected to start reviving growth sometime next year.
And global investors, who fled the region amid a worldwide retreat from risk set off by the meltdown of the US housing credit market, are coming back.
Data from fund tracker EPFR Global showed Asian shares outside of Japan attracting cash in five straight weeks through last Wednesday, lifting currencies such as the won, which hit a two-month high, and the Philippine peso .
‘Once recognition of a bottom in global equities spreads and the markets regain their composure, the momentum of the rally in Japan and other Asian equities is likely to build,’ said Yutaka Yoshino, an equity analyst at Nikko Citigroup in Tokyo.
In another encouraging sign, market volatility has come off its historic peaks, though economists warn that rapidly changing economic conditions mean more stomach-churning market swings for investors.
‘Market volatility will decline periodically, but economic uncertainty is higher than ever. Just as volatility remained high for a number of years during the early 1930s, it may take some time to durably decline this time around,’ said economists at Societe Generale.
Investors seem willing to bet that Asia, with its low debt, high household and public savings and limited exposure to the toxic US mortgage debt at the heart of the current crisis, will ride out the slump better than the rest of the world.
Most Asian governments, especially China, have deeper pockets than their US and European peers and can do more to encourage households to spend more and save less, providing some cushion to the collapse in exports.
Reflecting this optimism, Asia-Pacific shares outside of Japan gained 23 per cent since most markets hit bottom in late November, outpacing the 18 per cent rise in the MSCI World index and US S&P 500.
The gains come against the backdrop of some of the bleakest economic data in decades and the question is whether markets have already fully accounted for the hit to company earnings from the economic downturn and damage to currencies from low interest rates.
Many analysts seem to believe that this is the case and point to investors’ composure in the face of the latest grim statistics.
Japan’s Nikkei average rose nearly 2 per cent last week despite data showing both exports and industrial output plunging in November at the fastest pace on record. The yen, which tends to closely track stocks and move in the opposite direction, posted its biggest weekly loss in seven weeks.
Most analysts expect a market recovery next year though they say that the first half will be tough, with companies publishing their results and revised outlooks while fiscal spending is still waiting to kick in.
Equity analysts at Merrill Lynch say that the slide in the MSCI Asia-Pacific index has already accounted for the expected deterioration in earnings and slow turnaround.
They expect the index to hold above its all-time low of 194, hit last month, and to climb as high as 350 next year.
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Asian Stocks Showing Signs of Bottoming Out
Investors betting on region, with its low debt, high savings
Reuters
30 December 2008
(HONG KONG) From healing credit markets to big government stimulus spending, evidence is mounting that the historic 2008 sell-off may be fading into the history books.
While few market players are bold enough to say that the worst is over for Asian stocks, which have lost about half of their value this year - a record in at least 20 years, the telltale signs that several markets may have bottomed out are becoming clearer.
Credit markets, which tend to lead equities both up and down, kept recovering even as stocks pulled back at year-end.
Narrowing spreads on US interest rate swaps, an important gauge of financial system health, are another encouraging sign.
South Korea’s severe dollar funding shortage for domestic banks - one of the key pressure points in Asia - has started to relent just as the won has bounced and Seoul stocks have led the rally in regional shares.
Central banks have slashed rates like never before, with the world’s two largest economies now with short-term rates at virtually zero. Governments are lining up massive spending packages, which are expected to start reviving growth sometime next year.
And global investors, who fled the region amid a worldwide retreat from risk set off by the meltdown of the US housing credit market, are coming back.
Data from fund tracker EPFR Global showed Asian shares outside of Japan attracting cash in five straight weeks through last Wednesday, lifting currencies such as the won, which hit a two-month high, and the Philippine peso .
‘Once recognition of a bottom in global equities spreads and the markets regain their composure, the momentum of the rally in Japan and other Asian equities is likely to build,’ said Yutaka Yoshino, an equity analyst at Nikko Citigroup in Tokyo.
In another encouraging sign, market volatility has come off its historic peaks, though economists warn that rapidly changing economic conditions mean more stomach-churning market swings for investors.
‘Market volatility will decline periodically, but economic uncertainty is higher than ever. Just as volatility remained high for a number of years during the early 1930s, it may take some time to durably decline this time around,’ said economists at Societe Generale.
Investors seem willing to bet that Asia, with its low debt, high household and public savings and limited exposure to the toxic US mortgage debt at the heart of the current crisis, will ride out the slump better than the rest of the world.
Most Asian governments, especially China, have deeper pockets than their US and European peers and can do more to encourage households to spend more and save less, providing some cushion to the collapse in exports.
Reflecting this optimism, Asia-Pacific shares outside of Japan gained 23 per cent since most markets hit bottom in late November, outpacing the 18 per cent rise in the MSCI World index and US S&P 500.
The gains come against the backdrop of some of the bleakest economic data in decades and the question is whether markets have already fully accounted for the hit to company earnings from the economic downturn and damage to currencies from low interest rates.
Many analysts seem to believe that this is the case and point to investors’ composure in the face of the latest grim statistics.
Japan’s Nikkei average rose nearly 2 per cent last week despite data showing both exports and industrial output plunging in November at the fastest pace on record. The yen, which tends to closely track stocks and move in the opposite direction, posted its biggest weekly loss in seven weeks.
Most analysts expect a market recovery next year though they say that the first half will be tough, with companies publishing their results and revised outlooks while fiscal spending is still waiting to kick in.
Equity analysts at Merrill Lynch say that the slide in the MSCI Asia-Pacific index has already accounted for the expected deterioration in earnings and slow turnaround.
They expect the index to hold above its all-time low of 194, hit last month, and to climb as high as 350 next year.
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