BC: Taiwan was known mostly for LCD and semiconductor manufacturing—has it diversified at all?
MM: Oh yes, the Taiwanese stock market is very diversified: you’ve got banks and financial institutions, cellphone companies like Taiwan Mobile, and of course electronic companies making anything from flatscreen TVs to laptop computers. Going upstream, you have the IT foundries and that sort of thing.
BC: Are Thailand and Malaysia starting to see a bit of a comeback now, or are they still struggling?
MM: They’ve come a long way—there’s been a tremendous amount of reform in Thailand, particularly in the banking sector, where the Asian crisis began. Banks have been refinanced and have written off non-performing loans, and now you’re beginning to see the turnaround in healthier balance sheets and stock prices.
The improvements in corporate balance sheets are also being reflected in the improvement of the balance sheets of the countries. If you look at the foreign reserves, for example, there’s been a tremendous build-up in all those countries, so they’ve now become net creditors instead of net debtors. Hong Kong, Singapore, Taiwan and South Korea all have foreign reserves in excess of US$100 billion each.
BC: How are the currencies in this region faring?
MM: The only country that held its rate was Malaysia, which basically closed the foreign exchange markets and locked capital into the country: all the other countries experienced massive devaluations. Then there was a recovery, but these currencies [remained] undervalued against the U.S. dollar.
In the last few years, these currencies have begun to appreciate and come up closer to where they should be.
BC: Asia has been dominated by China and Japan— what does the future hold for these smaller economies?
MM: We’ve seen a change in the pattern of trade: these Asian countries are now exporting more and more to China, and Chinese exports to the rest of Asia are also accelerating, whereas exports from Asia to the United States are decelerating. China is now becoming a big engine for the rest of Asia, and of course that’s good for the Asian countries, because it helps them diversify their export base. One of the most significant things developing as well is the spread between interest rates on emerging market sovereign debt and U.S. Treasuries. After the Asian crisis, the spread was as much as 17%; now, it’s down to about 3%. That’s a very telling reflection of the increased confidence in the Asian market.
James Lewis is a contributing editor of BENEFITS CANADA.