Decoupling Concept

[winston]

Asian Growth Revives 'Decoupling' Concept By PETER STEIN

HONG KONG -- When markets around the world tumbled in unison last fall, the once-popular view that Asian markets and economies could hold up despite the turmoil in the West was quickly forgotten.

Now, investors have once again embraced the idea of "decoupling." Markets in Shanghai, Hong Kong and Singapore are up nearly twice as much as those in the U.S. and Europe as their economies recover strongly from the recession.

Optimism about Asia focuses largely on China's success in kick-starting its stalled economy with stimulus spending and easy credit. Gross-domestic-product growth hit 7.9% in the second quarter, up from 6.1% in the first, and Beijing's vaunted 8% growth target for all of 2009 no longer looks fanciful. Exports to China are helping a number of other economies recover, too, including Japan, South Korea and Singapore. Australia's economy is getting a boost from Chinese demand for its metals.

Frederic Neumann, an economist with HSBC in Hong Kong, still believes in decoupling. "I actually think we had decoupling in train since the middle of 2006, and that process got derailed temporarily by the breathtaking disruption in financial markets" when Lehman went under, he says. "Now we have it back," he says, thanks in large part to loose monetary conditions.

The question remains, for how long? Exports are still the key to Asian growth, and consumer spending in the U.S., their biggest target market, remains anemic.

Economists and policy makers agree that Asian consumers need to spend more if the region's manufacturers are to wean themselves off exports. Efforts to spur domestic spending include beefing up health-care protection and retirement benefits that will ultimately convince people that it is safe to buy more now and save less for a rainy day. They also include tax breaks and other short-term incentives.

Americans are formidable consumers, spending nearly $10 trillion a year; consumers in China and India combined manage to spend only about a fifth that much. Mr. Neumann says the growth in Asia is making up for some of the slowdown in the U.S. This year, Asians outside of Japan will spend about $165 billion more than they did in 2008, according to HSBC's forecasts, even as U.S. consumer spending shrinks about $30 billion. And total spending growth in Asia over the next five years is expected to far exceed that of the U.S.

( And what about spending by the Europeans and Japanese ? )

While much of Chinese growth is coming from investment in fixed assets, consumption is surprising on the upside, too. Chinese passenger-vehicle sales for August were up 90% over their levels a year earlier, according to a manufacturers association, aided by a tax break. By comparison, even the "cash for clunkers" program managed to boost U.S. auto sales for August by just 1% over their year-earlier numbers.

Not everyone is convinced decoupling is a valid story. Asian markets fell more sharply that Western markets, so investors who held tight in Asia would likely be no better off than if they had invested in the U.S. In recent weeks, the rally in emerging markets has stalled on concerns that investor enthusiasm may have gotten ahead of reality.

"Decoupling is a myth," says Stephen Roach, chairman of Morgan Stanley Asia. "In the aftermath of the post-Lehman demand shock in the developed world, every single Asian economy either slowed sharply or tumbled into outright recession. How can anyone call that decoupling?"

Speaking in Hong Kong recently, David Wyss, chief economist for Standard & Poor's, called decoupling "one of the dumbest ideas any magazine writer has ever come up with."

In the end, the debate over "decoupling" may be a matter of semantics. Post-Lehman, few would disagree that financial shocks can bring a brutal synchronicity to global financial markets. And while economies in the U.S., Europe and Asia are showing signs of recovery, the intensity of the bounce back will obviously vary.

For his part, Mr. Neumann acknowledges that the decoupling story isn't that tidy.

Asian monetary policy is likely to remain loose for some time even as economies pick up because the region's central bankers, who tend to shadow the U.S. Federal Reserve, fear that raising rates will cost them a competitive edge against their neighbors.

"This is the critical issue: we don't have monetary-policy decoupling," Mr. Neumann says. The result is that asset bubbles are building in China and other Asian markets "that might end in tears in a few years time," he says.

Write to Peter Stein at [email protected]

http://online.wsj.com/article/SB125287080543006725.html

[winston]

Asia poised to lead global recovery

Comment: Why do they even print this stuff? Everybody knows nothing bad is allowed to happen in Asia. That’s why everything is perfect there all the time.

Source: Dan Ferris, Extreme Value

[winston]

Decoupling Is Really Diversification by John Christy, Forbes International

If the U.S. is economically hobbled, the rest of the world will not be a swell place to invest, but spread your bets and you'll hit some winners.

http://www.forbes.com/2009/10/07/decoup ... rging.html

[winston]

This is the first time that I'm hearing that the Chinese and Indians can replace the US Consumer. When was the last time this guy visited India and China ?

Nomura’s Sheard Says China to Pick Up Slack of U.S. Consumer By Bernard Lo and Aki Ito

Jan. 25 (Bloomberg) -- Developing countries led by China and India will supplant the American consumer as the source of “natural growth” for the global economy, according to Paul Sheard of Nomura Securities International Inc.

There will be “less exuberant and robust consumption than we had in the past few years” in the U.S. because the American household will continue to “tighten its belt,” New-York based Sheard, global chief economist at Nomura, said in a Bloomberg Television interview in Hong Kong today. “There are other parts of the world, though, that can take up some of that slack,” such as China and India, he said.

U.S. consumer spending, which accounts for about 70 percent of its economy, probably dropped 0.6 percent last year, according to the median estimate of 59 analysts surveyed this month by Bloomberg News. The jobless rate held at 10 percent in December as discouraged workers stopped looking for work.

“There is a legacy of all that debt, and if you like, overconsumption that built up in the U.S. in the few years riding up to the crisis,” said Sheard, referring to the collapse of the nation’s housing market.

China’s gross domestic product will keep “booming” even if last quarter’s 10.7 percent expansion prompts the government to tighten policies “a little bit,” said Sheard.

“The tightening we’re likely to see in China is not going to derail this boom,” he said.

http://www.bloomberg.com/apps/news?pid= ... B_iAs9EC_4

[millionairemind]

haha... ppe. confuse quantity with quality.

[winston]

There is speculation that the Chinese consumer will pick up the demand slack for the U.S. and European consumers who are deleveraging and buying fewer Chinese-made goods.

This may happen, but it will take decades. The U.S. and European consumers are two-thirds of much larger economies. The purchasing power of the Chinese consumer, who represents only one-third of the Chinese economy, is significantly undermined by the undervalued renminbi.

Source: thestreet.com

[winston]

TOL:-

It's so funny to see the Asian markets go up or down with the movement in the US markets. And how the US markets are instantenously affected by the weekly data or something happening in a 3rd world country like Hungary as if that country can supposedly trigger a contagion and bring the entire financial system down. Does the Americans actually know where's Hungary and what do they have down there ? I dont ...

Well, one can argue that if the US consumers stop spending, it will affect the profitability of the Asian companies hence the share price.

So have you checked whether that's really the case for your counter or will you selling first and then investigating later ? How many slowdowns have you manage to predict that has really materialize ?

Nowadays, we are conditioned to react quickly and then investigate later as if we know what we are really doing. I have learnt my lesson. I sold SJM 880 the biggest casino player in Macau because the US market was dropping and the Asian markets were following the downtrend. That was about three weeks ago. SJM has since gone up about 20% from the price I sold ...

Do you know why you are Selling or Buying ?

[millionairemind]

W,

I am just curious here and you don't have to answer if you don't want to.

Most stocks follow the general market trend. All the stocks on my WL have dropped from a minimal of 10% to a huge 40% since we posted the correction on May 4th, though one of them went up 8% after I sold it.

If you were to own a basket of stocks that is on your WL, even if one of the stocks you mentioned went up 20%, but if the rest of the stocks went down 20-30%, you will still be net -ve if you held on.

Have you done a comparison?

I have come to the point where I don't beat myself up over a stock that got away. The 2008 was a great reminder when I sold out every time there was a correction and was not hurt.

Cheers,
mm

[winston]

Ha Ha ... I'm not talking about Watch-List. ( I probably have a 100 stocks on my watch-list ).

I'm talking about stocks that I have taken action to buy in this type of weak market.

And for me to really buy a stock in this type of weak market, it has already jumped through a few hoops eg. earnings surprise, positive news announcement, dipping on market direction etc.

And for me to have caught it at a good price with positive catalysts and then let it go because I'm frighten about Market Direction is real pity.

Anyway, I agree that those on the Watch-List did drop in price but I did not bother to buy them as they dont have a strong catalyst that can go against Market Direction.

I dont trade alot nowadays because of the bad sentiment. I sold just two stocks over the past three weeks. Both went up 15%. Two out of two is a very bad trade especially when I have screened through hundreds of stocks to arrive at these two stocks ...

[kennynah]

sorry to hear about your plight W.... take care...