Asia Currency, Interest Rates

Asia Currency, Interest Rates

Asia the top investment choice for expats - survey

Asia has overtaken continental Europe as the top investment choice for investors living outside their country of origin, according to a survey published on Sunday.

The survey of 350 expatriate investors conducted by online broker Internaxx in March and April showed that 39 percent had exposure to Asia, up from 33 percent a year ago.

Thirty-seven percent of investors have exposure to continental Europe, while 29 percent are exposed to the United States and 26 percent have investments in Britain.

A year ago, continental Europe was the most popular region, followed by the United States, Asia and the UK in the survey by Internaxx, a joint venture between Fortis Banque Luxembourg and brokerage company TD Waterhouse.

"The reasons for non-exposure to Asia -- lack of knowledge, concerns about corporate governance, market volatility and uncertainty over economic prospects -- have reduced," Internaxx Managing Director Robert Glaesener said.

MSCI's measure of Asia Pacific stocks excluding Japan rose 29.0 percent last year and has added a further 11.2 percent since the start of this year.

In comparison, the MSCI World index returned 18.0 percent last year and has risen 8.0 percent since the start of this year.

Among emerging markets, 42 percent of investors in the survey said they viewed China most positively, while 32 percent picked India.

Only six percent of international investors opted for Russia, due to concerns about a lack of transparency, the political climate and unstable governance. Five percent chose Brazil, where investors are worried about nationalisation and a risky political situation, the survey said.

The survey also showed that 90 percent of investors believe markets will rise or stabilise in 2007, up from 80 percent a year ago.

"Expatriate investors are very much like international investors," said Glaesener. "They have quite a progressive view of what to invest in."

Citigroup - Asia - Week Ahead

Citigroup - Asia - Week Ahead

Asian Stocks Add to Global Rout After China's Slump; BHP Drops

Asian stocks fell the most in more than eight months, extending a global selloff sparked by the biggest plunge in Chinese shares in a decade. BHP Billiton Ltd. and Posco led declines.

In the U.S, the Dow Jones Industrial Average dropped as much as 546 points, the most since the first trading day after the Sept. 11, 2001, terrorist attacks. Chinese stocks yesterday fell the most since 1997 after the government took measures to crack down on excess speculation that had driven shares to records.

``This will reverberate in Asian markets again today,'' said Shane Oliver, who helps manage about $64 billion at AMP Ltd. in Sydney. ``China's market has been poised for a correction for some time, which has made other Asian markets vulnerable too.''

The Morgan Stanley Capital International Asia-Pacific Index fell 3.3 percent to 143.80 at 11.30 a.m. in Tokyo after rising to a record yesterday. The gauge was set for its biggest drop since June 13. Chinese markets opened down, and swung between gains and losses.

Japan's Nikkei 225 Stock Average slumped 3.6 percent, set for the biggest drop since June 13. Toyota Motor Co. added to declines after the yen strengthened against the dollar in New York, eroding the value of exporters' sales.

Singapore's Straits Times Index plunged 5.3 percent while Malaysia's Kuala Lumpur composite Index tumbled 8.1 percent, leading declines elsewhere in the region. Stocks in China and Hong Kong may also slide for a second day, after the American depositary receipts of China Mobile Ltd., the world's largest mobile-phone operator by users, slumped 10 percent.

The Dow fell 3.3 percent while the Standard & Poor's 500 Index lost 3.5 percent, wiping out their year-to-date gains. The Nasdaq Composite Index slid 3.9 percent, its steepest drop since July 2002. Europe's Dow Jones Stoxx 600 Index slid 3 percent and emerging markets dropped.

China Tumbles

Shares also fell after U.S. durable goods orders fell 7.8 percent in January, reflecting the biggest slide in business equipment demand in three years, according to figures released yesterday by the Commerce Department in Washington.

China's Shanghai and Shenzhen 300 Index yesterday slumped 9.2 percent, also from a record. It had jumped 13 percent in the previous six sessions. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, plunged 8.8 percent, the steepest drop since Feb. 18, 1997. The rout wiped out $107.8 billion from the market value of China's companies, which had doubled in the past year.

Stocks fell after the State Council, China's highest ruling body, approved a special task force to clamp down on illegal share offerings and other banned activities in the market.

Commodities Hit

China's government has introduced several measures over the past year to calm the stock market. Banks were urged to stop lending money for stock investments and to recall outstanding loans, the China Banking Regulatory Commission said Dec. 31. The People's Bank of China, the central bank, ordered banks to boost reserves four times in the past year to reduce money available for investment.

``With capital flows being so global it's hard for action in a large country like China not to have an effect on other markets,'' said Amanda Smith, who helps manage $6 billion at ING New Zealand Ltd. in Auckland.

BHP, the world's biggest mining company by market value and production, lost 5 percent to A$27.40. Fiscal first-half sales to China rose 36 percent to $4 billion from a year earlier, the company said. Rio Tinto Group, the second-biggest by market value and third by production, dropped 3.9 percent to A$76.49. It generated 16 percent of its total sales from China in 2006.

`Worry'

``Commodities stocks are the losers because whenever something like this happens, investors worry about the implications for global growth,'' said Tom Murphy, who manages about $1 billion in Asian assets at Deutsche Bank AG in Sydney.

Posco, the world's third-largest steelmaker, slumped 4.3 percent to 356,500 won. China was the company's largest market after South Korea in 2005.

Korea Zinc Co., the world's biggest smelter of the metal, fell 3.8 percent to 90,600 won. Nippon Mining Holdings Inc., Japan's biggest copper producer, dropped 6.8 percent to 972 yen.

Toyota, Japan's largest automaker, dropped 4.1 percent to 8,000 yen. Matsushita Electric Industrial Co., the world's No. 1 maker of consumer electronics, lost 3.5 percent to 2,380 yen, while Sony Corp., the second largest, tumbled 6 percent to 6,130 yen.

The yen rose the most in more than 19 months against the dollar amid a sell-off in U.S. stocks and as investors shunned emerging-market assets, prompting an unwinding of trades betting on a decline in the Japanese currency.

The currency rose 2.3 percent to 117.93 against the dollar late in New York yesterday, the biggest gain since July 2005. It was little changed at 118.15 recently.

China ADRs Slump

``China's drop yesterday shocked risk-money investors, as did the yen's climb,'' said Mitsushige Akino, who oversees about $468 million in assets at Ichiyoshi Investment Management Co. in Tokyo. ``Stocks should fall across the board.''

China Mobile's ADRs fell 10 percent to $44.16 in New York. Its Hong Kong-traded stock yesterday slipped 2.9 percent to HK$74.90. ADRs of China Life Insurance Co., the country's biggest life insurer, fell 8.8 percent to $38.48. The stock fell 3.8 percent to HK$21.65 in Hong Kong yesterday and lost 9 percent to 33.89 yuan on the mainland.

Brilliance China Automotive Holdings Ltd., the Chinese partner of Bayerische Motoren Werke AG, tumbled 12 percent to $24.30 in New York. The stock fell 6.9 percent in Hong Kong yesterday.

Hong Kong's Hang Seng Index yesterday lost 1.8 percent. The Hang Seng China Enterprises Index, which tracks the so-called H shares of 37 mainland companies, fell 3.1 percent.

``It's not just a one-day drop,'' said Andy Mantel, managing director of Pacific Sun Investment Management in Hong Kong. ``There's more room in the downside. My strategy is to increase in cash and shorts.''

Asia: Asia's Decoupling Story -- The Litmus Test

Chetan Ahya | Mumbai

Decoupling debate back to forefront. The increasing level of globalization has meant that cycles in both real economies and financial markets in Asia and the US have tended to move in a synchronous manner. However, major strengthening of Asia Ex-Japan’s balance sheet over the last few years is fuelling expectations of a decoupling from the US economic growth. In 2006, AXJ’s nominal GDP is estimated to increase to 45% of US’s GDP from 33% in 2000. The debate is intensifying as recent data from the US indicate a potentially significant deceleration in America’s growth trend. Indeed, our US economics team now expects GDP growth there to slow to a 15-quarter low of 2.2% YoY in 1Q07. The key question for the markets in 2007 is whether AXJ will follow the US in the ensuing downcycle or will it emerge as a “decoupler”?

The case “for” decoupling. There are two key arguments supporting the case for decoupling. First, AXJ’s trade dependence on the United States has been declining gradually over the past few years. This is evidenced by the fact that the US share of AXJ’s exports decreased to 17% in 1H06 from 22% in 1998. Second, the rise in nominal interest rates in AXJ has been slower than the rise in interest rates in the US in the current cycle. Since the US Federal Reserve began its tightening campaign in June 2004, average nominal short-term rates in AXJ have risen by only 85 basis points (150 bps, excluding China), while US short-term interest rates have risen by almost 380 bps.

Evidence suggests linkages remain strong. The actual trend for AXJ export and GDP growth indicates that these economies remain highly correlated with US GDP growth. Since a period of divergence during 1997–98 (when AXJ’s growth decelerated sharply due to the Asian crisis), AXJ has been closely coupled with the US. Moreover, AXJ equity markets have also exhibited a tight correlation with those in the States. Indeed, over the trailing 24 months, monthly returns in Asia ex-Japan have shown a correlation of 0.8 with returns in the US.

We view 2007 as a testing year. For AXJ to decouple, the single-most important factor will be its ability to stimulate domestic demand (the major components being fixed investment and private consumption). In AXJ (excluding India), fixed investments are made with an eye on potential future global demand rather than domestic consumption. Hence, the fixed investment trend has tended to follow the region’s export and global growth cycle. The structural dynamics of private consumption are also uninspiring. Already decelerating, the private consumption trend in the region is unlikely to accelerate much in 2007, barring a sharp cut in interest rates. Indeed, a slowdown in US consumption would only reduce the region’s trade surplus and therefore lessen support provided by excess liquidity. Even though nominal interest rates in the region have lagged the Fed, short-term real interest rates have been rising and are now almost converging with those in the US.

Accounting for 17% of the region’s GDP growth, India is so far the only large economy in the region to have successfully stimulated private consumption growth. However, a large part of the country’s consumption growth is debt funded and dependent on global liquidity trends. Consumption growth in India is now beginning to reflect the rise in interest rates, which in turn have been influenced by the US monetary policy. We believe that the lagged effect of higher interest rates will further slow India’s consumption growth in 2007.

Bottom line — case for decoupling is weak. Although the jury is still out, we believe the case for AXJ decoupling remains weak. Exports and export demand-dependent fixed investment continue to be the key anchors of AXJ’s growth story. In the absence of structural reforms, private consumption is unlikely to take charge any time soon. We believe the case for decoupling is not convincing as we see little indication that AXJ economies can stimulate internal demand enough to offset a potential slowdown in the US.

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