DIY Investor Magazine
| August 2017
31
a few exceptions Asian currencies are free floating,
meaning their value is determined by the foreign
exchange (forex) markets through supply and demand,
and as a result they have much more flexibility to reflect
domestic economic cycles ensuring that pressures don’t
build.
Current and trade accounts, with the exception of India
and Indonesia, are now in surplus, with the practice of
unhedged foreign borrowing all but ended. Short term
foreign debt in ASEAN (the Association of South East
Asian Nations) nations has dramatically dropped from
160% to now less than 30%.
The Global Financial Crisis (GFC) in 2008 was borne
out of exuberance in the West but not in the East and
although Asian economies were impacted by the
slowdown in global growth, Asian economic credibility
was never called into question.
The only economy that is showing a worrying trend
is China. A credit boom following the GFC has seen
debt-to-GDP balloon from 160% in 2008 to 260% in
2017. The nature of this debt however is different from
that accrued by South East Asian Countries in the late
1990’s.
Firstly, most of the debt lies with state owned
enterprises (SOEs) and is hence backed by the >$3tn
worth of foreign exchange reserves, and most of it is
denominated in renminbi.
Secondly, although China operates a managed
exchange rate regime against a basket of trading
currencies, the capital account is closed which restricts
the amount of speculative flows.
Finally, a lot of the debt is owned by domestic
institutions and is long term in nature which reduces the
likelihood of enforced withdrawal leading to a liquidity
crisis.
The impact of the Asian crisis lives long in the memory
of Asian corporates. The days of rapid expansion and
growth for the sake of growth have gone and been
replaced by conservatism and a focus on cash flow and
profitability.
Corporate debt levels are at all-time lows while cash
flow compares favourably to any other region of the
world. Interestingly it is developed economies that
are now showing the stresses Asia encountered and
recovered from 20 years ago; Asia in comparison looks
favourable.
The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional
investment adviser.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and
you may not get back the amount originally invested. Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the
name under which Henderson Global Investors Limited (reg. No. 906355), Henderson Fund Management Limited (reg. No. 2607112),
Henderson Investment Funds Limited (reg. No. 2678531), Henderson Investment Management Limited (reg. No. 1795354), Alpha-gen
Capital Limited (reg. No. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. No. 1508030),
(each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and
regulated by the Financial Conduct Authority to provide investment products and services.
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