It's a curious thing when the world's biggest growth market, Asia, has dramatically underperformed American and European stock markets, this year and over the past 12 months. Particularly as it should be a key beneficiary of any green shoots of global economic recovery. More curious still is that Asia's most cyclical markets - China, South Korea, Taiwan and Malaysia - which should be the largest winners from any economic pick-up, have been among the worst performers in Asia.
How can this be? There appear to be four factors at play: 1) there's little evidence of an economic upswing in the region 2) yen depreciation has altered the landscape for key export competitors in Asia 3) there are fears over inflation and tighter monetary policy in key economies such as China 4) politics has played a part with leadership transitions in China and South Korea adding to policy uncertainties.
Importantly, more reliable export figures from South Korea and Taiwan indicate little in the way of recovery. In February, South Korean exports fell 8.6% year-on-year (YoY). Combining January and February, thereby smoothing out the impact of the Lunar New Year, exports from South Korea grew 0.6% YoY, marginally better than the 0.4% decline recorded in the fourth quarter of last year.
Similarly, Taiwan exports in February fell 15.8% YoY. Combining January and February, exports increased 2.1% YoY compared with the 2.5% rise recorded in the fourth quarter last year.
2) The substantial fall in the Japanese yen is beginning to impact key exporting rivals in Asia, including South Korea and Taiwan. These countries sell similar products to Japan and they're not only significant exporters to nations outside Asia but also to Japan itself. Yen depreciation explains some of the weakness in the export figures of these countries. It certainly explains much of the weakness in their stock markets.
Source: Bloomberg
http://www.zerohedge.com/contributed/2013-03-16/why-are-asias-markets-trailing-world
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