Richard Jerram, chief economist at Bank of Singapore Ltd., says the market declines reflect overly ambitious expectations rather than fundamental weakness in the economies.
“There’s a good structural story based on the underlying domestic demand,” said Jerram, who has analyzed Asian economies for two decades. “What you see at the moment is reaction from expectations being unrealistically positive maybe 12 months ago, to now becoming more realistic.”
One bright spot is Japan, which has seen its economy bounce back on Prime Minister Shinzo Abe’s fiscal and monetary stimulus. The Topix stocks index has risen 31 percent this year.
Abe has yet to show that he can sustain the recovery by restructuring company and labor laws and taming the nation’s debt, which topped 1 quadrillion yen ($10 trillion) in June.
“Asia still has potential in the next three years or more, but in the shorter term, momentum for business is slowing down,” said Shuichi Hirukawa, senior fund manager at Mizuho Asset Management Co. in Tokyo. “Investors may become more cautious.”
China Signs
China’s economy last quarter extended the longest streak of expansion below 8 percent in at least two decades, curbing earnings at companies such as Hong Kong-based Cathay Pacific Airways Ltd. Still, there are signs of improvement. Industrial output rose more than economists estimated in July, after larger-than-forecast rebounds in exports and imports and improvement in gauges of manufacturing and service industries.
China is making efforts to bolster confidence. Overall liquidity in China is ample as banks channel more funds to agriculture and small businesses in the world’s second-largest economy, People’s Bank of China Governor Zhou Xiaochuan said on state broadcaster China Central Television yesterday.
“Some Asian countries, especially India, have their own significant domestic challenges,” said Jim O’Neill, the former Goldman Sachs Group Inc. economist who coined the term BRIC in 2001 to describe Brazil, Russia, India and China. “But China is slowing primarily to improve its growth model and at 7-7.5 percent annual growth is still delivering $1 trillion nominal GDP. And Japan, still Asia’s No. 2 economy, is looking better than it has done for a very long time.”
‘Very Global’