Asia Optimistic in the Face of Global Financial Turmoil; ECONOMY

The Birmingham Post (England), August 25, 2007 | Go to article overview

Asia Optimistic in the Face of Global Financial Turmoil; ECONOMY


Byline: By Vidya Ranganathan In Singapore

Asia is staring once again at a global financial market turmoil, but this time with confidence that its economies are out of harm's way - at least for now.

Such optimism is new for a region that has seen more than its fair share of financial upheaval, but it is based on sound reasoning.

Asia, excluding Japan, is expanding at more than eight per cent a year. Barring India, hardly any country in the region needs foreign money to fund that growth.

A huge stockpile of foreign currency reserves and low levels of short-term debt mean Asia is in no danger of being dragged into a crisis, like the one in 1997/98, should speculators flee the region en masse.

Corporate balance-sheets in Asia are healthy and the cash piles sitting in the region suggest the cost of bank loans is unlikely to rise much.

So, even as mortgage lenders in the United States shut shop, banks cut jobs and credit conditions tighten all over the world, economists are sanguine about Asia's prospects.

"So far we are sticking to the story that financially Asia is exposed, but fundamentally it remains quite robust," said Frederic Neumann, an economist with HSBC.

"Even if there is a slowdown in the US in the next two quarters or so, Asia should be relatively immune to that."

The credit turmoil, originating in the lower-grade US mortgage sector, has barely grazed Asian markets.

Banks in the region have reported marginal, if any, exposure to such assets, stock markets are down 15 to 20 per cent from their all-time highs many analysts considered inflated, and currencies have dipped between two and five per cent.

Unlike their European and US counterparts, Asian central banks did not need to pump funds into the markets and policy makers from Japan to Malaysia have repeatedly stressed their economies are robust enough to weather the turbulence elsewhere.

In fact, South Korea's central bank raised policy rates twice in the past two months and China raised its rates this week to keep a lid on domestic prices. …

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