eastwestmarkets – Page 7 – East West Markets

Japan, UK, Economy: A Comparative Look

From the 1960s to the 1980s, Japan’s economy was strong. Today, this is not the case. Looking at Japan’s economy in 2013, one can compare it negatively to the UK’s. As economist James Carrick pointed out, today there is a mounting fear that Japan’s 2008 financial crisis will not be that dissimilar to the “prolonged period of poor or non-existent growth in the UK.”

Ben Chu, Economics editor of ‘The Independent,’ questioned whether there would ever be a full economic recovery in the UK, especially given the Bank of England’s prediction of continued stagnancy. Vis-à-vis Japan, UK, economy, Richard Koo noted the parallels between the two. An economist at the Nomura Institute, Tokyo, he said that particularly after the bubble burst in Japan, its central bank “sought to contain the destructive forces of deflation through quantitative easing.” But this didn’t help the money supply or boost bank lending.

Carrick concludes though that there is a strong sense that the UK will not encounter “a Japanese-style slowdown.” He feels that the UK is actually stronger and more dynamic and thus will not go down the same path. Nonetheless, by learning more about Japan’s weaknesses, it is easier to see what might help for the UK economy. In the UK there is has been an escalation in immigration and rising retirement ages which has boosted the economy. This is not the case for Japan which has encountered a “slowdown as [the] working population growth went into reverse.”

Still, Philip Aldrick, Economics Editor at ‘The Daily Telegraph,’ points to the “eerie parallels” between the Japan, UK, economies. Statistically the facts speak for themselves. He says, “Japan’s economic problems are well-rehearsed. The world’s third largest economy has national debt of 236pc of GDP, and a budget deficit of 10pc. The UK, by comparison, is a bastion of fiscal rectitude, with national debt of 88pc and an 8pc budget deficit, using International Monetary Fund numbers.”

One of the biggest problems facing Japan’s economy right now is the unrealistic optimism of its experts. According to professor of comparative religion, Tetuso Yamaori, “the Japanese are optimistic. They believe the good times will come.” The UK on the other hand is more realistic, “get[ting] on top of its debts before they choke off not just the economy, but the hopes of a generation. Infrastructure spending is not the solution. Japan tried building its way to growth, but it just loaded up the debt burden.” Kohei Otuska, Democratic Party of Japan politician, argued, “the Japanese people…unless they experience a crisis, they don’t’ think they need to respond.”

Thus there are parallels between the economies of Japan and the UK. It is thus worthwhile to look at the positives and negatives on each and act accordingly.

Asia America Ties

Stronger ties are developing with Asia America. The US is indicating a more substantial commitment to Asia in recent times. This was particularly noticeable when, at the end of July, President Barack Obama hosted the Vietnamese President, Truong Tan Sang at the White House. The meeting was particularly poignant since it happened four decades after the end of America’s military involvement in the Vietnam War. As well, this is a time of advancing ties in security and trade with Asia America, via Washington and Hanoi.

President Obama said that he understood Asia America’s “extraordinarily complex history.” Further, the two regions have developed “mutual respect and trust,” and it is hoped that this will advance even more on economic as well as military issues in the future.

Some of the subjects discussed at the meeting included: the Trans-Pacific Partnership; South China Sea maritime disputes; climate change; human rights and economic ties. Vis-à-vis the partnership, Obama said, “we’re committed to the ambitious goal of completing this agreement before the end of the year because we know that this can create jobs and increase investment across the region and in both our countries.”

At the conclusion of the meeting, President Obama said:

“So I just want to say to President Sang how much I appreciate his visit. I think it signifies the maturing and the next stage of the development between the United States and Vietnam. As we increase consultation, increase cooperation, increase trade, and scientific and education exchanges, ultimately, that’s going to be good for the prosperity and opportunities of the people here in the United States, as well as good for the opportunities and prosperity of the people of Vietnam.”

Improving China UK Relations

After quite some time, China UK relations are on the upswing. It seems that Britain and Beijing are finally ending their cold war, possibly primarily due to the fact that the UK government is not prepared to witness an independent Tibet. Indeed, this move to enhance China UK relations was even commented on in The People’s Daily (Communist Party’s official newspaper) which wrote “Sino-UK relations have taken a step forward.”

In a move that is likely to further enhance China UK relations, Britain’s Prime Minister David Cameron is due to hold a summit with China’s Premier, Li Keqiang. This will bring to an end over a year of no contact at top government level. Having no contact during this time has panicked officials in the British government who feel England could lose out to other European regions like France and Germany that both boast strong political-economic connections with Beijing already. Foreign Secretary William Hague told his Chinese counterpart Wang Yi that this year had witnessed “unprecedented Chinese investment into the UK as well as strong growth in bilateral trade.”

It would be good if China UK relations were to receive some injection of good faith. Things weren’t always so poor. Indeed, around 10 years ago, Britain was the fourth-largest trading partner China had. Clearly China UK relations can return at least somewhere close to that position.

Asia America Crossovers

Mobile payment platform company Square, is now publicly available in Japan. The service enables firms to accept credit card payments from mobile devices for a transaction fee of 3.25% for each swipe. This news marks the company’s very first presence outside of North America and is indicative of a broadening of ties between Asia America.

Currently, the Japanese are very excited about the iPhone. Thus this new move from Square to set up shop in the region, renders a potential crossover market. It was the iPhone that first launched on iOS and thereafter, Android. Thus it has been suggested that Square’s new presence is somewhat “bold,” given that Japan already boasts quite a market for mobile payments, pioneered by KDDI and NTT docomo. In addition, PayPal already has a strong presence in Asia, partnering with Softbank in Japan. Nonetheless, Square co-founder and CEO Jack Dorsey said, “I am honored to introduce Square to a country with a rich history of design, innovation and tradition. Square shares the same values and attention to detail in our products.”

It should also be noted that Square has not rushed expansion procedures. It partnered with Sumitomo Mitsui Card Corporation (SMCC), in Japan to help this transition but that’s it. While it will be opening in Japan, the company has no other immediate plans to launch its presence in other global corners for the immediate future.

Stock Comparison: Europe V Asia

Asia has been encountering stock market escalation for some time now, but it was only earlier this week that their European counterparts started to follow suit. There was an increase of 2.6 percent in Samsung Electronics Co. stocks – the largest exporter of consumer electronics in South Korea. As well, gains were tracked in Asia from Europe’s stock market. A statement from the Group of 20 major economies led to the yen plummeting, boosting stock markets. In addition, there were some of the largest shares reported in Italy, following the re-election of Giorgio Napolitano as President which was said to have relaxed political tensions.

The escalation in European stocks also resulted in the highest level of the benchmark index since June 2008. This could have been the catalyst to Bloomberg’s prediction of a cut in interest rates orchestrated by the European Central Bank. According to Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd., however, it should be noted that “in the short- term, some markets like Japan and the U.S. have been overbought and could consolidate from day to day.”

The Hedge Fund Industry

There are many different strategies used by hedge fund managers to deal with risk. Increasingly, since institutional investors are considering putting their money into a hedge fund, risk management is being regarded as an integral part of the process. According to a survey conducted by Prmia and SunGard APT, more than 80 percent of hedge funds feel risk management will become more crucial to raising assets this year. This suggests that a long-term solution for hedge fund risk management should be seen as “an essential function.”

Currently, hedge funds generally focus on short-term downside risk measures, as opposed to statistical measurements that have been used in the past such as volatility. Thus it is probably a good idea for hedge funds to engage more heavily in stress testing as that is a more concrete way of dealing with declining performance. It is thus better for the hedge fund industry to engage less in backward-looking risk analytics and more in stress testing.

In other words, what needs to happen is that the investment process has to include an integration of risk management as currently this is one of the primary challenge of hedge fund managers. Another issue for hedge funds to contend with is regulatory uncertainty which few believe has enhanced risk processes.

As well, given that Europe has recently encountered the Alternative Investment Fund Managers (AIFM) directive, hedge funds there are being pushed to a uniform approach to risk management and measurement. In turn, they are becoming more like retail Ucits funds in reporting to regulators and investors.

Post-Thatcher Impact on Asia

The Iron Lady may be dead but that does not mean her legacy does not live on. While during her time in power Margaret Thatcher sought to repair finances at home by lessening the state’s role and enhancing the free market, this had an impact on the eastern side of the world as well. Thus on reflection, today, around three decades following this woman’s rule of power, Lee Kuan Yew, a former Minister Mentor in Singapore who during his time at the helm worked with Thatcher, believes her to have been “a great leader and a person with strong convictions.” He added that it was only when she was leader of the Conservative Party that it “set the course to transform Britain.” It was her who enabled the country to become free market and entrepreneurial state it did, while boosting exports and promoting the region’s trade and investment market opportunities

In addition, during her time as Prime Minister of England, Margaret Thatcher signed the Sino-British Joint Declaration, ratifying Hong Kong’s return (which had until then been a British colony) to China, even though it was not something she was happy about.

Perhaps this is why today, even though underground, Thatcher is enjoying some kind of renaissance in Asia. New Japan and S. Korea leaders are honoring her as a hero and role model. According to experts, one reason for her popularity in the east is connected to her nationalist, anticommunist foreign-policy position in a place where China’s speedy economic and military rise created much anxiety.

In addition, implementing neo-liberalism vis-à-vis the economy was an attractive concept since Japan’s economy (that was once very powerful) is now sliding and S. Korea is finding it a challenge to maintain its “economic miracle.”

Further, there have been similarities drawn between South Korea’s first female leader, Park Geun-hye and Margaret Thatcher. In 2007, Park herself described Thatcher’s leadership as being one that would be able to “revive South Korea from crisis.” Indeed, this was why Park’s campaign managers tried to link her to Thatcher during the election campaign. Neither Park nor Thatcher would be intimidated by powerful men or totalitarian regimes. As well. In more recent times, Park dealt with North Korean threats with a promise for strong retaliation, akin to the Iron Lady who since passed. Park too has been accused of ignoring the plight of the less fortunate.

Ultimately, it must be recognized that while Park does promote a more “laissez-faire” attitude on government involvement, her economic platform still promotes welfare spending along with state guidance in industrial policy, hardly to be described as Thatcherite. So while there are similarities in the two powerful leaders’ strategies and styles, there are also significant differences that will lead to a distinction in impact on both their economic nations.

Mobile Phone Popularity: East Versus West

At the end of 2012, it was discovered by the Pew Research Center that close to 90 percent of adults in America owned at least one mobile phone (45 percent of which were smartphones). A similar trend has occurred in the East, as in Japan, the figure for smartphone ownership is 25 percent and there are 30 million smartphone users in South Korea. The Forrester Report believes that the smartphone usage figure in the Asia this year, will develop by 20 percent, whereas America’s figure is set to be half of that for 10 percent.

In light of this, there has been some quite notable development in the mobile space in Asia which is impacting that of the West. This includes: Kakao Talk (an app that lets users text, phone and share media for free is now its own platform for third-party apps). Line (a messaging app that first came into the market following the Tōhoku earthquake; today its users can access third-party developers under a similar structure). The second app has already reached 50 million users in just over a year and the Kakao Games platform launch got a staggering $35.3 million with 82 million downloads in just one month.

UK-India Business Coalition

A few days ago, India witnessed the largest overseas business delegation from Britain in its history. Headed by the PM David Cameron, a three-day-visit from the British policy-makers comprised meetings set to develop stronger economic cohesion between the two countries. Cameron felt “proud” of this venture and in a speech he delivered at Hindustan Unilever factory, pointed out: “India’s rise is going to be one of the great phenomena of this century…Britain wants to be your partner of choice.”

What Cameron has been talking about is not so different from previous Western delegations to India that have sought to attach their flailing economies to a more dynamic one. Even though India’s economy has plummeted slightly, it is still enjoying an average six percent of growth per year.

Along the same vein of enhancing ties between the two countries, David Cameron has an ambitious goal: to double annual bilateral trade from the 2010 figure of $17.8bn (£11.5bn) to £23bn in 2015, to coincide with the next UK general election.

The delegation is also seeking to encourage the government of India to liberate airline, banking, insurance and retail industries for all foreign investors. The education industry is a source of focus with heads of six British universities joining the delegation – the idea being, to attract foreign students. During the trip, Cameron was in Mumbai and then New Delhi, the latter of where he spoke with the PM and President of India, Manmohan Singh and Pranab Mukherjee respectively.

Best Countries for Business

Japan Versus UK

In a recent report by Bloomberg, Japan was ranked higher than the UK vis-à-vis the regions that are best to do business with. In this report it escalated four places, stealing the third spot, with only America and Hong Kong ahead of it. For measuring purposes, the review utilized six criteria. Two of these were: the extent of economic integration; preparedness of the local consumer base.

Perhaps another reason for Japan’s escalation in this review has something to do with its 14 percent drop in the yen against the dollar over the last year. This has increased its competitiveness in the export market.

However, Japan’s trade deficit for last year was extremely high with a substantial decrease in exports to China and Europe. Its exports have been plummeting for the last seven months with a drop in shipments of almost 6 percent in December 2012. Some analysts believe the deficit may have reached its nadir, given the expectation of an improvement in exports over the next few months. Once that happens – along with the general upswing in the world economy – there is a strong likelihood that the country’s trade deficit will shrink alongside it. This does not mean it will go into surplus in 2013 but at least it will be going in the right direction. One also has to take into consideration the escalation in the price of oil import. As well, given that Europe is still trying to deal with its debt, the region is less interested in Japanese exports.