Tags: advani | Korea | China | Asia

South Korea, China Lead Asian Growth Spurt

Wednesday, 03 Aug 2011 09:47 AM

By Ashish Advani

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A few weeks back, I had written to you about South Korea and the possible explosion of growth there.

The latest trade data from Korea portrays just that: Exports for July 2011 grew by 27 percent MoM (Month over Month) after a tepid 13 percent growth last month.

Imports have shown a steady decline falling from a growth of 30 percent in May to 27 percent in June and 23 percent in July. So as you can expect, the trade surplus (yes folks, there are still some countries that run trade surpluses) has ballooned $2.1 billion in May to $7.2 billion in July.

And on the other side, inflation is still running above expectations, which is a green light to rate hikes in Korea. The won is soaring as we speak.

A few months ago I had mentioned the “Dim Sum” bonds that are the hot favorite debt issuance in Hong Kong. For those who have just joined the club, the Dim Sum bonds are the nickname given to debt issuance in Hong Kong financial markets that are denominated in the Chinese renminbi (RMB). So U.S. companies can now legally borrow monies denominated in the Chinese currency out of Hong Kong (HK).

While that issuance is strong, what is also part of the data emanating from HK is the growth in renminbi deposits in HK.

Renminbi deposits in the Hong Kong system reached 553.6 billion renminbi in June, representing an increase of 4.8 billion renminbi from 548.8 billion renminbi in May. At 553.6 billion renminbi, it is around 9.2 percent of total system deposits in Hong Kong, and only 0.7 percent of the total deposits of 78.6 trillion renminbi in mainland China.

Due to the two-way flows with mainland, the growth of deposits are slowing, as I had expected, but what this is signifying to me is that the experiment that mainland China started with acceptance of deposits first, issuance of debt next and now the two way flow of trade RMB is all working and becoming mainstream. This experiment is a great way of China firing off test balloons in the global financial markets, before they take the major step of free floating the renminbi.

Moving further south in Asia, I want to visit Thailand and Indonesia next.

I will be writing to you about the amazing turnaround we are witnessing in Thailand next week. The data coming out of Bangkok is quite spectacular and heart-warming. The restoration of democracy via the recent election seems to have the signs of a long term solution and the re-election of Thaksin’s sister seems to be what the people wanted.

Finally there seems to be the signs of lasting peace.

Prosperity of Thailand is not far behind with the currency hitting multi-year highs already. I would wait just a tad bit longer than jumping in, but I am watching some excellent companies in Thailand to invest in. Inflation is still running uncomfortably high at 4.02 percent and I fully expect more rate hikes and further strengthening of the Thai baht.

Indonesia has also been printing excellent growth results. The challenge here too, is that inflation is still much higher than acceptable. Core inflation has moderated just a touch, but still well above the mark.

As a result of strong growth, the central bank is going to feel confident enough to raise rates here again without fear leading to lower inflation and a sustainable growth rate.

Stay strong, Asia, and continue to prosper!

Meanwhile, I hope you enjoyed my musings on India during my recent trip there. I will be bringing you more on India as things develop there.

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