[East Asia Summit] Asia's Tiger Economies Leave Memories of Leman Behind

As the signs of optimism are on the winding road of recovery, economists worldwide are paying full attention to a chance to see the second wave of crisis and circumstances in Asian financial markets.

Many experts say that chances to experience another recession as hard as last year are not most likely scenario for Asian countries as well as U.S. and Europe: major countries continue to report better economic indexes and global stock markets re-gain most of their losses that broke out following the Leman Brothers collapse last September.

However, the worst scenario for Asia’s tiger economies cannot be ruled out mainly because of their reliance on exports and vulnerability to overseas markets. In America, unemployment rate is less likely to go down any time soon and a danger in commercial real estate market gets in the way of such a positive forecast. Europe’s slow pace of writing down toxic loans is also another hindrance to recovery.

◆ Low Possibility to See 2nd Wave of Crisis

Economists say that the financial markets in Asia show less volatility, more stability. For instance, the Asian stock markets have reclaimed its pre-crisis territory, boosted by growing optimism for a fast economic recovery.

Chinese shares soared to record high with the benchmark Shanghai Composite index nearing 3,500 points this year after the Leman Brothers collapse last September when the index nose-dived below 1,600-point level at the height of the global financial and economic crisis.

The benchmark Korea Composite Stock Price Index (KOSPI) also stayed above 1,600-point mark and analysts comment that the market has recovered impressively to the level before the collapse of Leman Brothers. With the sole exception of Japan with Nekkei index falling to 9,600 point-level compared to 12,000 point-level last September, most Asian shares have climbed above where they were before that momentous weekend in mid-September 2008.

Analysts say that China would be the key to prolonged improvements in the financial market in Asian region and emerging Asia’s longer-term prospects largely depend on how much growth the economic engines in China would be able to pull off.

Lim Ji-won, economist in JP Morgan in Korea, said that the driving force behind the bullish markets this year has been abundant liquidity mainly backed by massive fiscal stimulus and monetary easing from China, adding that the financial system might feel pressure because of the government’s plan in China to withdraw money out of the market.
However, the doughty resilience of Asian economies should not be underestimated and the consensus among experts is that a stronger bounce can be expected in the region, though Asia is not totally free from the additional ripples of advanced economies like U.S.

“Asia does not show any indication of bubble to grow into the crisis and it might as well to wait and see since the markets are now trying to get back on the right track,” said Oh Seok-tae, senior economist in Standard Chartered First Bank in Korea.

◆ Unsolved Obstacles from U.S. and Europe

Still, the U.S. economy is the biggest factor in the future of Asian economies. In particular, a threat of a double-dip recession in America still looms ahead of optimism, though the American stock market is blooming with recovery and S&P500 index increased by 50 percent after hitting the bottom in March.
 

High unemployment rate in the U.S. is one of reasons behind such pessimism. The jobless rate soared to a 26-year high of 9.8 percent and 263,000 jobs were lost in September.

The commercial real estate market might give rise to another credit crisis since vacancy rate in the apartment, retail, and warehouse sectors already have reached at 15.4 percent in the first half of this year, one percent point up from the same period of last year.

Toxic assets in Europe could also lead to another disaster hitting the global financial market. The ECB estimated bank writedowns due to securities - or toxic assets - of 218 billion dollars from the start of the financial turmoil to the end of 2010, while bad loans would account for another 431 billion dollars - a total of 649 billion dollars.

Cho Man, professor of KDI School of Public Policy and Management, mentioned that bad loan in America and Europe is a key factor to recovery and the country is still struggled with credit card and mortgage debt.

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