Asian markets: Asian stocks have had a rough week. Excluding Japan, markets have fallen by 7 per cent. The decline is both bad and good news for governments and central bankers.
Start with the bad news. Asian exporters aren’t out of the doldrums. The world’s largest contract mobile phone maker — Foxconn, part of Taiwanese electronics giant Hon Hai — made its fourth profit warning since 2008 on Monday, this time that a fall in demand and weak pricing led to a significant decline in 2009 profits. In response, the tech-heavy Taiwan market had its worst one-day fall in six months.
Right now though, a bad week in the markets is a sign of policy success. Ample liquidity has helped push stock markets up as much as 70 per cent in the past year. Shares are not generally too expensive, but a pull-back looks healthy. The greater risk of asset price inflation comes from property. The value of Chinese sales surged 87 per cent in 2009.
Beijing has acted. It has implemented a planned increase in required reserves for certain banks. The brakes were hit after Chinese banks extended 1.45 trillion yuan ($212 billion) in new loans during the first 19 days of 2010, which looks like another record, surpassing the run-away loan growth at the beginning of 2009.
It seems the authorities' anti-inflationary moves have started to pull liquidity out of the market. Sales of Hong Kong properties slowed in the fourth quarter of 2009. Investors expect the squeeze to tighten further. The Hong Kong dollar weakened to a 15 month low to the U.S. dollar on concern that capital inflows from China will ease if Beijing continues to tighten.
But Asian governments are also afraid of killing growth. A too strong rise in borrowing costs combined with a too sharp drop in asset prices could do just that. That concern might explain why the Chinese central bank surprised the market on Tuesday by leaving yields unchanged in its closely watched one-year bill sale.
As policymakers dance with inflation fears and economic woes, wild swings in Asian markets will be hard to avoid.
