Asia raises the economic bar

China’s gross domestic product (GDP) for the first half of this year was 11.5 per cent, which is its 11^th year of significant GDP growth.

Invesco Hong Kong investment director Maggie Lee said for the past 10 years China has enjoyed good economic growth due to the macro reforms to the economy.

“The Chinese Government has reduced the inflation rate as the Central Bank becomes more sophisticated handling the economy,” she said.

“This has resulted in phenomenal GDP growth in the 9 to 10 per cent band and is sustainable in the long-term.”

China has become the powerhouse of the Asian region, which for the purpose of this article excludes Japan.

Lee said the macro reforms were not just limited to China, as many Asian countries are now producing good GDP figures.

Compared to the Asian crisis of 10 years ago, most Asian countries have built good reserves and were no longer dependent on the US dollar, which was part of the problems in 1997.

“Asia has been reporting strong capital growth and developed good capital markets,” she said.

“There is also strong liquidity in many Asian markets, especially China.”

The Shanghai stock market has reported strong growth figures and the Hang Seng index is up between 20 to 30 per cent despite recent volatility in global markets.

Lee said China was still reporting strong export growth and has a current account surplus.

“The capital markets in China are more liquid, and this is very attractive for investors,” she said.

Strong economic growth is also helping a rise in consumer spending due to stronger individual incomes.

“This is pointing towards long-term growth in the domestic Chinese economy, which is also being passed onto other economies.”

A major change in the region since the Asian crash has been intra-country trading.

Many Taiwanese companies have switched their manufacturing to mainland China, where there is a lower cost base.

Thailand, Malaysia and Korea are exporting manufactured goods to other Asian countries. This is leading to more robust local economies.

“The region has become backed by strong fundamentals,” Lee said.

“In 2006, the foreign reserves balance in all Asian countries was $US2.2 trillion.

“This compares to $US480 billion 10 years ago.”

Lee said most Asian economies are delivering a current account surplus.

“The Asian economy has a good cushion against problems in the global economy and I see little downside,” she said.

“The strong liquidity will be very powerful for the region in the future.”

While China is the star performer in the region, Korea has become very attractive, as it benefits from global consumer demand.

Lee said Korea’s expertise in shipbuilding and the petro-chemical industries was not only attractive to global markets but also had strong local demand.

“Korea has benefited from the resources boom, as there is a demand for ships to carry the raw materials,” Lee said.

“Two other countries that are delivering good returns are the Philippines and Malaysia.”

These two countries are becoming strong manufacturing bases due to low labour costs, as is Thailand, which is attracting automotive companies such as Honda.

“The domestic economies of these countries are growing stronger, yet shares are still relatively cheap,” Lee said.

The one country Invesco does not invest in is Vietnam.

Lee said the Vietnamese market was very illiquid and hadn’t developed an entrepreneurial economy.

“However, we have been visiting Hanoi and looking at the market, we just don’t see it as a market to invest in at this stage,” she said.

— John Wilkinson