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Asian tide on the turn

The years 1997 and 1998 were not kind to Asian markets. The

currency crisis of 1997 spilled over into the real economy and a vast number of investment projects were aborted – but has the tide changed?

National Asset Management executive director Asian equities Patricia Preneta surmises that it has.

In a recent analysis of the region, Ms Preneta has closely analysed the countries that make up the region.

Her findings in respect of each of the countries add weight to her contention that “Asia is emerging strongly after the economic crisis...

which forced currencies to break away from the $US, and encouraged many reforms...in the banking sector and restructuring of government debt”.

In South Korea, the economy rebounded by over 10 per cent in 1999 and is expected to grow by around 7.9 per cent in 2000.

Economic growth of around 8 per cent is occurring in China and trade has rebounded by 39 per cent in the first quarter of 2000.

Exports in Hong Kong are growing by 26 per cent and the economy is displaying signs of a 10 per cent growth rate in the first quarter of 2000.

The last few years delivered 5 per cent to 6 per cent growth to Taiwan and this is expected to grow to 6.7 per cent in 2000.

In Singapore, a 10 per cent growth in exports has filtered through to an economic growth rate of around 7 per cent.

About twelve months ago, we reported on the interventionist style of government that Dr Mahathir had instituted in Malaysia and recognised that this would lead to an improvement in that economy.

Ms Preneta’s research would seem to confirm this, with a 6.5 per cent growth rate being generated largely from low-level technology manufacturing.

The banking system in Thailand has been the main contributor to the country being the laggard in the region. Even so, Thailand is estimated to register a growth rate of 5.5 per cent. The actual result for the first quarter of 2000 was 5.2 per cent.

Contending with the political upheaval that accompanied the financial problem was always going to be a major challenge for the Wahid government in Indonesia. Control by the IMF was also an issue. However, consumer expenditure has started to pick up and could be the first signs of regrowth in this economy.

The last two governments in India have begun systematically reversing the bureaucratic and administrative constraints that have characterised the Indian economy since independence fifty years ago. The software and information technology sector, in particular, has now achieved a level of global dominance not envisaged by many. The Indian economy is growing by 7 per cent and consumption expenditure is starting to pick up.

“Asia, as a whole, is now growing in excess of 6 per cent per annum – well above the 2 per cent growth in Europe, and even the 4 per cent plus growth in the US, which will trend down to 2 per cent to 3 per cent over the next few years,” Ms Preneta concludes.

“The high growth rate in Asia will be sustained and revitalised after the recent crisis”.

There is certainly compelling evidence in Ms Preneta’s research to conclude that Asia is a region that could take the mantle of world growth away from the US.

There may still be shocks of the kind, but not necessarily the magnitude, that we saw in 1997 and 1998.

However, the overriding conclusion one could draw is that the growth rates exhibited thus far may well be sustained into the future.

l Economist Suresh Rajan is a director and proper authority holder with Smith Martis Cork and Rajan – financial planners.

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