Bounceback for the Asia Pacific region

The four parties interested in the success of the Asia Pacific region – governments, consumers, corporates and investors – have enjoyed a decade of growth since the days of the Asian credit crisis in 1997. Indeed the situation then – high, often unsustainable rates of GDP growth achieved at a cost of short-term foreign fund inflows, current account deficits, rising inflation, depreciating exchange rates and slumping stock markets – could not be more different a decade later.

Economic policy management has improved markedly from the 1990s with regional governments less interested in policies which are inconsistent with long-term economic stability and development, partly due to the development of capital markets in the region and partly to greater commitment to seeing through economic policy decisions. GDP rates of growth for most countries in the region are high yet sustainable, and even for China and India - where GDP growth is just above and just below 10 per cent a year - most commentators agree that growth is under control. Inflation is also restrained, albeit with considerable regional variations. The Asia Pacific economies in general enjoy capital and current account balances as well as large fiscal surpluses.

Against this beneficial economic background the consumer in Asia Pacific economies has enjoyed unprecedented growth in standards of living. Numerically it is India and China that have tended to grab the headlines on this score, but one should not ignore how rising prosperity has affected a previously impoverished country such as Vietnam or driven previously affluent societies such as Singapore to new levels. These countries are now enjoying both high savings rates and high levels of domestic consumption.

Such growth has impacted positively on the corporate sector. In general, Asia Pacific companies have never been stronger. Their profitability, as measured in terms of return on equity, is now similar to that of the US and better than Europe. Dividend pay out ratios have been rising rapidly. Debt/equity levels are falling (having fallen from a peak of over 80 per cent in the late 1990s to around 25 per cent now), profits are rising, free cash flow is improving and is as positive now as it was negative a decade ago. Corporate governance, previously a contentious issue with many companies in the region, is also improving.

Against the background of such a dynamic region, investors are spoilt for choice. Do they chase returns in the fast-growing, perhaps overheated, markets of China or India, or look to invest in the less dynamic, cyclical economies of Korea or Taiwan with their heavy and technology industries, including steel, chemicals, transportation, shipbuilders, construction and electronics?

Do they invest in the restructuring of government-controlled listed companies in Malaysia or publicly-listed corporates in Singapore or follow the strength of foreign inflows into India? Does the investor buy into plantation companies of Malaysia and Indonesia (helped by rising agricultural commodity prices on the pickup of Chinese demand) or the “new” markets of Vietnam or Cambodia? To what extent do they follow the trend away from established “old Asia” companies such as HSBC in Hong Kong to “new Asia” concerns and does the investor in the region remain committed to the dominant but separate Japanese market, which has historically been treated by investors as detached from broader regional growth patterns?