Nachum Kaplan, IFR Asia Pacific Bureau Chief
Anyone watching Asia’s capital markets will be accustomed, by now, to predictions of the collapse of the western financial system. Doomsday predictions are, after all, far easier to make when they relate to someone else.
Asian markets have defied the turmoil in Europe and the US, but they are now taking a distinctly negative view of the region’s own future.
Share sales have become all but impossible. Pretty much every major listing in the region, from Graff Diamonds in Hong Kong, to Formula One in Singapore, has been pulled or postponed as the equity markets have gone from bad to worse. From the market’s point of view, the pulling of these deals is like pouring water on a drowning man. Some of these issuers still plan to list but, frankly, it is hard to see where the necessary market improvement for that is going to come from.
Loan market volumes have been down all year as more issuers opt for the bond market instead. While volumes are strong in North Asia, even that is due to short-term M&A financings for very specific purposes, rather than any vote of confidence from the bank market in longer-term prospects. Volumes in South-East Asia, where there has been almost no M&A, have been paltry.
A Greek exit – or even a eurozone collapse – will be unpleasant but will, ultimately, be manageable. Continued uncertainty is not.
For much of this year, Asian companies have been loading up on US dollar debt, but, even there, the narrative has always been cautionary. Asian issuers, it was said, were not coming to market because conditions were good, but instead because they feared conditions would worsen and they would be frozen out later in the year. That analysis turns out to have been prescient, because that is exactly what has transpired.
Driving all of this is a macro-economic outlook that stubbornly refuses to improve. Europe desperately needs to pick itself up by it bootstraps, but the continent’s worst economies no longer even have boots. The break-up of the eurozone looks as likely as at any time since the crisis began, and any such break-up would make today’s problems seem trivial. The nascent recovery in the US seems to be petering out, if the latest job numbers are any guide, and the recent correction in US equity markets shows investors are clearly spooked.
That Europe and the US are in poor shape is nothing new. What is different this time is that Asian economies, especially the growth behemoths of India and China, are slowing quickly. The region is no longer a haven from the world’s troubles, but is instead rapidly becoming part of the problem.
The rapid slowdown in the Asian capital markets is a reflection of this fact. Asian governments still have the firepower, in the form of fiscal surpluses and large foreign reserve holdings, to launch huge stimulus programs. But like quantitative easing in the US, a second round of stimulus programs may have diminishing returns.
Everyone knows the world economy is in a fragile state – but that is not the most worrying thing. The bigger worry is the uncertainty. A Greek exit – or even a eurozone collapse – will be unpleasant but will, ultimately, be manageable. Continued uncertainty is not.
While doomsday scenarios are easy to dream up, the End of Days is not yet upon us, for that would mean an end to this crisis is in sight.
As long as European politicians dance their way around a solution, there will be no end in sight – and plenty of reasons to fear that things could get much worse before they improve.
It’s not the End of Days - it’s worse than that.
