Home » Business » Biz Commentary
More crosscurrents to come in Asia
Print Edition
Reform in China and Japan, US Federal Reserve tapering and geopolitics across Asian countries will present challenges and opportunities for investors in 2014.
Global gross domestic product growth is forecast to accelerate to 2.8 percent from 2 percent, while Asia may continue to expand at a steady 6.3 percent pace. Fundamental developments in the region are likely to be fast-moving and varied across economies and sectors.
Asian economies in the coming year will probably be buffeted by major policy transitions in the US and China.
The Federal Open Market Committee is due to scale back its US$85-billion-a-month program of asset purchases. Adding to concerns about FOMC policy is the change in Fed leadership scheduled for January.
Tighter Fed policy, especially if badly executed, may derail growth in Asia through two channels. First, a reduction in liquidity may raise interest rates, slowing credit growth and investment. Second, fears that tighter policy will weaken growth may temper hiring and cool the discretionary spending of consumers, hurting Asia’s exports.
China’s shift toward an economy driven by higher-quality, domestic consumption from one led by investment will affect growth in other Asian countries. Until Chinese household spending or net exports compensates for slower investment growth, exports in the rest of the region will suffer.
Consumer growth
The emerging consumer class in China and Southeast Asia should continue to support faster growth in the region than in developed Western economies.
Autos are exemplary of this, with surging demand for sports utility vehicles causing passenger vehicle sales to rise.
Multinational staples companies may also be attracted to opportunities to consolidate market share in order to tap into the region’s secular expansion.
The rising number of high-income households in China, India and other major emerging markets is also propelling luxury purchases.
One notable consumer growth story may encounter headwinds. Macau’s integrated casino resort operators face slower growth prospects in 2014, as the industry’s capacity expansion pauses ahead of an accelerated build-out planned for 2015.
In technology, 2014 will be the year of the 4K TV, an ultra high definition standard, with a battle emerging between Japan and South Korean consumer electronics powerhouses and newer Chinese upstarts.
Global consumer purchases should increase with progressively lower prices. Chinese Internet companies are also likely to generate higher revenue growth from mobile devices next year, led by shopping and entertainment media sales.
The tapering of US quantitative easing will probably dominate the Asian financial sector in 2014. Bond yields and interest rates may rise further, boosting banks’ net interest margins as well as increasing the risk of more bad debts.
In energy, power utilities in Hong Kong, Japan, South Korea and Taiwan may struggle to win significantly higher prices next year, even as rising liquid natural gas costs threaten margins.
Solar energy industry consolidation is also likely to continue in 2014, with a few large participants emerging. Stabilizing pricing and new market demand from Asia may drive producer revenue and renewed profitability.
In metals and mining, China’s penchant for gold and seeming lack of interest in silver will dominate the outlook again. Global coal markets will face oversupply and gains in market share for Chinese mines, though these trends are easing from prior years.
China reforms
The shipping industry may begin to recover in 2014, as demand begins to strengthen and excess capacity is absorbed.
China’s leaders are renewing their commitment to reform as an old economic model runs out of steam. Policy shifts that shore up medium-term growth won’t pay off for short-term investors.
The world’s second-largest economy has slowed sharply, to about 7.6 percent growth in 2013 from higher than 14 percent in 2007. A shrinking workforce and diminishing returns to investment raise concerns of a further slowdown.
Economists predict an expansion of 7.5 percent in 2014. China’s top leaders gathered in Beijing in November to agree on a reform package, aiming to put the economy on a sustainable path. The comprehensive policy shift is billed as the most significant since Deng Xiaoping kick-started market opening in 1978.
Accelerated moves toward liberalizing the financial sector may be rolled out first, and will have the most immediate impact on the market. Plans to liberalize interest rates and the exchange rate, encourage greater capital outflows, and reform initial public offerings are already in motion.
A blaze of publicity around announced reforms buoyed investor confidence. The CSI 300 Index rose 3.3 percent on Monday following the publication of the decision.
Changing the facts on the ground will be difficult to do. China’s working age population has already started to decline. The country will shed almost 70 million workers by 2030. A massive pile-up of debt has seen outstanding credit balloon to about 200 percent of GDP.
Interest-rate liberalization erodes profit margins for banks and raises the cost of borrowing across the economy. In the weeks following the leadership summit, the central bank maintained interbank rates near 4.5 percent, up from about 3 percent in January.
A proposed property tax threatens to slow growth at home and commodity demand abroad.
Outlooks diverge, reflecting the uncertainty around potential growth and the scope and impact of reforms. Deutsche Bank is most optimistic, predicting 8.6 percent growth in 2014. Societe Generale forecasts a 6.9 percent expansion.
The article, co-authored by Tim Craighead, Tamara Henderson, and Tom Orlik, is abridged from Bloomberg Industry’s Asia 2014 Outlook report. The opinions expressed are their own.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
