August 19th, 2011
11:46 AM GMT
Hong Kong, China (CNN) – I’m a guy who pretty much looks to the bright side of things. You know, that “glass is half-full, silver-lining” kind of guy. But reporting profusely – almost manically – on the volatility of Asia-Pacific markets these past few weeks, I have this knot in my stomach that tells me things will get worse before they get better.
You see, right after the 2008 global financial crisis, Asia-Pacific markets made significant gains against their U.S. and European counterparts. Case in point, throughout 2009, the Dow rose about 15% while the main indexes in Australia, Hong Kong, Korea and China rose from 30% to 75%.
On the flip side, this year to date, Asia-Pacific markets have turned a darker shade of red than their U.S. counterparts. The Dow has lost nearly 6% but markets in our region have fallen from 11% to 17%.
With that, I dare say that decoupling theorists may have to wait a bit longer to be proven right. If anything, the volatility of this summer is proving that Asia remains linked – and perhaps overly sensitive – to shocks from the U.S. and Europe. It’s as if the waves generated from bad data in the U.S. or from sovereign debt issues in Europe just grow bigger – into tsunamis that eventually wash over Asia, raising investor fear and slamming confidence.
And there is no good news out there to serve as a barrier wall – either from the U.S., Europe or Asia.
In the U.S. this week, Morgan Stanley came out with that gloomy analysis that the West is on the brink of recession yet again. New jobs data showed unemployment applications spiked above the 400,000 level, signalling the job market is still stuck in the mud. And manufacturing activity in the mid-Atlantic region unexpectedly fell to its lowest level in 2.5 years.
In Europe, sovereign debt issues still plague eurozone countries such as Greece, Ireland, Italy and Spain. This week, investors were also underwhelmed by that highly-touted summit between German Chancellor Angela Merkel and French President Nicolas Sarkozy. The result of that meeting? Well, if you don’t remember anything ground-breaking or positive, then you’re not alone.
And here in Asia, some of the “best” news comes out of Japan and China. Tokyo’s latest GDP data showed growth wasn’t as low as expected for the April-June quarter. It came in at -1.3%. That negative sign means contraction. And that’s supposed to be a good thing? Meanwhile, China’s inflation rate for July came in at 6.5% – its highest in three years. At the same time, monetary policy-tightening measures targeting that inflation are also curbing growth. And Australia, rich in resources like iron and copper, could see a downturn in revenue if China’s growth slows.
So, don’t expect Asia to be the life raft of the financial world in 2011. The shocks reverberating from the U.S. and Europe may be too much to bear for a region dominated by export-dependent economies plagued with inflation and natural catastrophes.
If the West falls, Asia will likely fall with it.
Then again, maybe I’m wrong about all this and it will all simply turn around. The “glass is half-full, silver lining” guy inside of me wants you to prove me wrong. Please do. This time I don’t want to be right.
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