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an issue we've looked at before
Asia ex Japan Strategy Markus Rosgen, Elaine Chu, Chris W Leung
October 24, 2007
- Growing consensus that Asia can decouple. We find no supportive
evidence - Correlations between Asian export growth & US/ G3 non-oil
have risen 2.1x over the last 20 years to 0.7. The same series using
intra-regional exports has shown a six-fold jump to 0.6.
- Asian ROE's fell more in the 2001 downturn than in the three prior US
recessions - The 2001 downturn did not lead to a recession, yet ROE in
Asia ex fell by 280 bps vs. an average of 150 bps in the prior three
recessions. Hardest hit in the post-1990 recessions: tech, other
financials, materials &industrials. ROEs actually rose for the
utilities, telecoms and banks.
- A common misconception: North Asia is more US growth sensitive -We
have found that India, Korea and Taiwan have elasticities of less than 1
to US GDP growth, whilst ASEAN ranges from 1.3 to 1.7. Yet investors are
overweight ASEAN on the belief that they are buying domestic
consumption.
- Domestic consumption-to-GDP ratios have fallen in Asia; export ratios
have risen - The ratio of consumption to GDP has fallen over the last
five years to 59%. At the same time, the contribution of net exports to
GDP growth is higher today than in the last 15 years. Nor have Asian
consumers ever behaved counter-cyclically.
- Stock market correlations stand at 30-year highs - Never over last 30
years have market correlations been negative nor been as high as now,
between Asia & the USA & Europe. Correlation coeff of 0.6 and above
doesn't make for decoupling.
Asia ex Japan Strategy Markus Rosgen, Elaine Chu, Chris W Leung
October 24, 2007
- Growing consensus that Asia can decouple. We find no supportive
evidence - Correlations between Asian export growth & US/ G3 non-oil
have risen 2.1x over the last 20 years to 0.7. The same series using
intra-regional exports has shown a six-fold jump to 0.6.
- Asian ROE's fell more in the 2001 downturn than in the three prior US
recessions - The 2001 downturn did not lead to a recession, yet ROE in
Asia ex fell by 280 bps vs. an average of 150 bps in the prior three
recessions. Hardest hit in the post-1990 recessions: tech, other
financials, materials &industrials. ROEs actually rose for the
utilities, telecoms and banks.
- A common misconception: North Asia is more US growth sensitive -We
have found that India, Korea and Taiwan have elasticities of less than 1
to US GDP growth, whilst ASEAN ranges from 1.3 to 1.7. Yet investors are
overweight ASEAN on the belief that they are buying domestic
consumption.
- Domestic consumption-to-GDP ratios have fallen in Asia; export ratios
have risen - The ratio of consumption to GDP has fallen over the last
five years to 59%. At the same time, the contribution of net exports to
GDP growth is higher today than in the last 15 years. Nor have Asian
consumers ever behaved counter-cyclically.
- Stock market correlations stand at 30-year highs - Never over last 30
years have market correlations been negative nor been as high as now,
between Asia & the USA & Europe. Correlation coeff of 0.6 and above
doesn't make for decoupling.
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