Author: eastwestmarkets

Europe’s Mess Impacting Asia

Since Europe is still trying to battle out its debt crisis, the impact on Asia in not particularly promising.  Indeed, the region’s oil prices are staggering, nearing $93 per barrel.  Yet it should not be forgotten that despite this, the outlook for both the economies of China and America is positive.  Still, the facts on the ground remain that there are concerns – crude plummeted more than 10 percent – for example, while investors fear the two mega economic environments will not continue to climb as they have been doing in recent times.  And the political unrest that is plaguing Greece alongside the general negativity spawning Europe is not helping the situation much either.  This situation would undermine crude demand but if America’s economy does continue its upswing (as is hoped but not necessarily anticipated),then the crude price is likely to collapse even more.  If this does happen, other oil products like gasoline will also come down in price.  Hopefully this will result in a domino effect on inflation which will enable politicians and economists to potentially alleviate monetary policy and in turn, expand economic growth.

Asia’s Role

So how does Asia fit into all of this? The region’s economies definitely have a more positive predicted image vis-à-vis Europe’s economic chaos than other places.  And it is doubtful that China will be subject to difficulties in this area either.  So that’s some good news.  At least, that’s the opinion of Andrew Colquhoun, head of Asia-Pacific American-based firm.  He feels that Asia’s restricted exposure to banks in Europe will be able to protect it against financial failure in this debt-riddled continent.

In addition, the economies in Asia depend on foreign households and consumers who purchase Asian exports than they are on foreign banks providing funding.  As well, there is the consideration as to the possibility of occurrences in Europe can in any way limit Asian sovereign ratings.  Colquhoun believes not.  In addition he is not convinced that for the short-term, China’s financial picture is anything to worry about, irrespective of the facts that are pointing to a weakening in Asia’s economy as a whole.

So while there is good news for various parts of Asia, Europe needs to fix itself if it wants to see a continuation of an economic recovery from both the east and west of the global economy.

China, Japan and US Markets

It looks like China’s growth figures are going to be higher than anticipated.  This is due to the expectation of Japan’s leading share index opening higher too.  But the anticipated figures are very much dependent on the stability of the yen and on some raised worries that tensions could increase due to the launch of North Korea’s ballistic rocket.  According to one strategist at Monex Inc., it looks like Japanese stocks will “chase the upside following the U.S. markets.”  Immediately thereafter, America’s stocks netted a second day of solid gains.

Japanese Market

There are currently two principal issues with which the Japanese market needs to contend.  First, fears of North Korea and second, the weakened dollar.  These problems need to be sorted out if Japan has any hope that the west will take it seriously vis-à-vis investment-making and business development.  The weak yen isn’t exactly helping the situation either; indeed, it’s definitely negatively impacting various Japanese ETFs.

Clearly though, unfortunately, the tsunami the country experienced last year is still being dealt with as well. Indeed, it’s not doing much for Japan’s economy, even today. So now the question being asked is if ETF investors will have a solid chance of making gains in Japanese equities. At least for this year though – as compared to figures in 2011 – Japanese equities are rebounding and the expansion of the Bank of Japan’s figure to $1.37 trillion has facilitated economic stabilization.

Conclusion

So ultimately it’s somewhat unrealistic to make sweeping statements about the Japanese economy and the benefits or disadvantages of making investments there today.  It could just be a case of potential investors in general feeling better about taking risks and bringing their money to the east, simply because America’s economy is experiencing less flux and the Eurozone isn’t such a scary financial haunt anymore either.  Or, it could be that there are good reasons for western investors to take their monies back to Japan – it really depends in great part on who one asks, and, at where the yen/dollar sits at that particular time.

Asia’s Economic Success: In Spite of Europe’s Mess

In recent years, although other eastern markets have failed to thrive in debt-ridden European environments, Asia has not been one of them.  The region has not encountered nearly as much strife as its neighbors and in fact on the contrary, has enjoyed impressive financial growth.  For western businessmen therefore, Asia fares pretty high on the list of possible potential addresses due to less red tape; stable investment opportunities and higher interest rates, especially in countries like Indonesia. 

Indeed, Indonesia’s GDP increased by almost 6.50 percent last year which is the highest since the Asian crisis began (and way better than neighboring China and India) and it does not need to depend on global trade flows for success either. Its population is large and growing and its youth has minimal debt and thus greater spending capacity and it offers a huge variety of commodities, being self-sufficient in oil and gas.

Oil Issues

So that’s great for Indonesia. But is this the case throughout the region?  Do all eastern markets have so much to offer potential western investors?  Perhaps not. Looking at oil prices that are increasing at uncontrollable rapid speeds, Asia’s growth could be shot in the food, making it a rather unattractive place for western businessmen to lay their hats.

In addition, since Asia does not stand alone, both the western world and indeed the global community at large, needs to understand that it will be impacted as well.  Should its growth be stumped, this will have a domino effect on Europe and won’t do any favors for America’s recession recovery either.  As Tweeter FirstpostMarketsLive noted, “Asia is largest consumer of oil having surpassed North America in 2007 to account for more than 31% of world demand.”

Asia’s economic conglomerates are concerned.  Nomura, a multinational conglomerate offering financial services has been taking a stand on the potentially problematic matter.  The company’s chief economic advisor, David Resler noted, even though there isn’t as great a threat to a resumption of the financial crisis, this oil price mega increase at the beginning of the year has replaced that threat in as great a severity.

So ultimately there is a lot of optimism out there for potential western investors into Asia.  But should the oil price increase crisis not be solved, it could be downhill for not only the entire region, but potentially the whole world.  Asia needs to sort this out, and fast.

East-West Car Markets

 

Since the Indonesian economy is currently growing in leaps and bounds, it seems to be the place to sell cars.  Of course, once one has some extra money to play with, a great way of showing it off is via his or her new flashy cars.  Auto manufactures around Asia are honing in on this newfound wealth as well.  Indeed, in 2011, Indonesians purchased 890,400 cars – a figure – according to Frost and Sullivan, that is set to increase to close to 940,000 this year.  As well – perhaps somewhat surprisingly – it seems that now Thailand is lagging behind Indonesia in the region. 

Foreign Eastern Automakers

In addition, automakers from out of Indonesia in 2011 promised to put close to $2bn into the country over the next few years, but time will tell if this is actualized.  Currently, Japanese manufacturers hold 90 percent of the market with Toyota boasting a second production plant about to launch.  As well, Suzuki is planning a third and Nissan is hoping to spend $250m to expand its current facilities.  Toyota also aims to boost its production by 70,000 by next year.  Both Nissan and Suzuki enjoyed huge increases in sales last year (Nissan by 50 percent and Suzuki by a third).

Foreign Western Automakers

It is not just companies in the east who are trying to make big profits in Indonesia in the car market.  Ford and General Motors are also trying to get in on the act.  For example, in 2011, Ford sold double the amount of cars it did in 2010; it hopes to repeat this success this year too.

American Airlines Outsourcing East?

Historically, American Airlines has not followed the regular trend of outsourcing its maintenance works east. But now it seems it will be following suit as aircrafts like the Boeing 767 and 777 that require work could be on their way out.  Southwest Airlines for example, already sends its aircrafts to Canada and El Salvador for maintenance.  As one expert pointed out, since the aircrafts anyway fly everywhere, they can thus be maintained anywhere. So what airline companies are seeking is competitive pricing. And ultimately, with that on the table, American companies just can’t compete.

Safety First

This issue has been discussed previously; whether jobs should stay at home or be sent away. But now the question being asked is whether it is really as safe to send aircrafts away for maintenance since the feeling is the US do a better, more thorough (and thus safer) job.  As well, the Transport Workers Union is concerned that government inspectors are not able to properly oversee “third-party maintenance facilities.” Since third-party companies are generally not FAA-certified and lack the necessary quality controls, this raises the risk factor.

This is probably why American Airlines has stated its intention to use its own mechanics to do the bulk of its maintenance work and just outsource 40 percent of it; safety first, being a priority.

IT in India Escalates

A recent economic forum held in India concluded that India should be looking towards the possible creation of local jobs outside of the confines of its country.  It seems that vis-à-vis keeping jobs at home or away in Asia, there are various schools of thought currently abounding. HCL Technologies for example, believes jobs should be sent out of India, but other companies (like those in the auto and furniture industries), disagree.

At the World Economic Forum Annual Meeting, it was discovered that HCL Tech will be setting up 10,000 jobs within the next five years.  But these won’t be in India; the jobs will be located in the West – throughout the United States and Europe.  One expert at the Forum pointed out that since globally there are various different economic/business problems, India should look at this conference and see how it can help it out, not hinder it.

Recently, Angela Merkel, the German Chancellor, pointed out that companies should invest in Europe but to do so, jobs need to be created.  Thus the HCL initiative will change the view that Indian companies are taking away jobs from people living in the West.

And of course we already know that trends within the Indian IT market are changing significantly, especially vis-à-vis pricing escalation.  Thus India’s IT market needs to look at “new growth models” and other available options if it wants to keep up with global movement in the IT market.

Manufacturing Away, Not Home

China – Not US – More Efficiently Producing iPhones

Although there has been talk about Chinese jobs returning to the United States of America due to the fact that sending them there is no longer proving to be such a money-saver, when it comes to the manufacture of iPhones, it seems this is not the case.

While still working on the iPhone, Apple CEO Steve Jobs was incredibly demanding and it seemed his desires could only be met in China, not America.  He wanted a perfect glass screen to be developed in as little time as six weeks.  The Chinese didn’t let Jobs down.  Within 96 hours, its facility employing 8,000 workers putting in 12 hour-days had produced over 10,000 iPhones.  No American plant would be able to achieve that.

So, unlike other manufacturing plants, it seems that Apple will not be moving its operations to America any time soon.  If it did, figures show that it could take up to nine months to find the close to 9,000 industrial engineers to produce the iPhone in America.  In China it would take just 15 days.  The figures thus speak for themselves.

Japan’s Yen Versus the Euro

For nearly a decade now, Japan’s Finance Minister, Jan Azumi has been warning that the yen’s escalation against the euro have happened rather too quickly.  Europe has been battling to solve its debt crisis which has resulted in a 15 percent appreciation of the yen against the Euro during the last six months of 2011.  This has continued into 2012 which has witnessed a further 2.4 percent yen increase.

Impact on Japan’s Economy

Unfortunately, it’s not just Europe that is suffering from the debt crisis.  According to UBS foreign-currency strategist, Daisaku Ueno, it is negatively impacting Japan’s economy.  He pointed out, “in

dollar/yen, companies are adjusting to yen strength. But as Japan exports more to the Eurozone than it imports from it, it is more difficult to adjust to euro weakness.”

However, this has not been affecting overseas investors.  They are still purchasing Japan’s bonds which is thus elevating the appreciating pressure on the yen.  As well, the currency was 2 percent stronger at the end of last week than the figure for October 31 – the most recent dollar/yen intervention.

Chinese Manufacturing Jobs to Return to US?

At one time, the United States of America seemed to be sending all its manufacturing jobs east.  But now it looks like these positions might be boomeranging back to the west.  Why?  Because it is no longer all that inexpensive to outsource such positions to China, so there does not seem to be as much point.  According to experts from the Boston Consulting Group (Douglas Hohner, Harold Sirkin and Michael Zinser) industries such as furniture and auto will be returning to America as it no longer pays to have them in China.

At one point it was the case that labor was cheaper there – less than $1 per hour – but this has changed along with the significant expansion in China’s economy.

China’s Environmental Efforts

China is making significant environmental efforts. As the leading carbon polluting economy around the world, the country intends to impose a carbon tax in an effort to decrease greenhouse emissions. That’s great but it should not lead us to believe that the whole world is going green.  In Australia, the government has been pleased about the carbon tax – anticipated to be put into practice within the next three years – given that it is working on its own climate change policies and shows that internationally, countries are working hard to decrease greenhouse emissions.

China has been working on different ways of working with cleaner energy sources but it remains uncertain as to exactly how this is going to work and what effect it will have on the country’s emissions or those throughout the world. At last month’s UN Climate Chance Conference held in Durban, SA, the mega economies of the world decided to come up with a legally-binding treaty within the next three years on this matter. Yet the conference was still unable to commit to drastically reducing emissions throughout the world.

Australia’s Concerns Vis-à-vis China

Australia remains concerned though about China’s green efforts. Since the starting price of the increase to China’s plan to price carbon is $1.55, this is just a tiny fraction of Australia’s starting price of $23 per tonne.  Thus is causing the Minerals Council of Australia to think that it could hurt the competitiveness of Australian businesses.  This might suggest that Australia is a bit too ahead of the game on global green acidity which ultimately puts its economy in a more vulnerable position.  Time will tell.