Friday, September 09, 2005

Part II of Katrina's Impact: Asian Economy

As many of you know, I moved over to the East (the Far East that is) early this summer. Suprisingly, a lot of what I do is controlled by the Governments in Asia do. There is MUCH more regulation here than anyone ever told me, and I used to follow Asia pretty closely! But perhaps I'm just getting older and realizing more and more the absolutely massive role nation states play in the world economy.

Setting that aside, everyone knows the basics. China and India are the sleeping giants. China has been the darling of analysts for quite some time, and a boon to commodities worldwide. Everyone I respect who follows China says the energy shock is gonna hurt, big. No one I know though has said that as a result, commodities will lose value too. I'm not sure why this is. An energy shock should affect consumption rates across the board. And if a billion plus Chinese half less money in their pockets to buy a cup of joe, the price of coffee is gonna go down, for sure. Moreover, retailers, take Starbucks for example, that have pinned hopes on china are gonna get stepped on too. Why these guys haven't been in the short cross-hairs is beyond me. They're in mine though!

So, not only will you see an oil price dip, just like the one our esteemed colleague Chriss Chross alluded to in her post, but you'll see almost all commodity prices dip. The ones set for the largest pullback in my opinion are coffee, platinum, and gold (in that order). Silver is a wild card as the rumors on battery tech are getting stronger and stronger. Oh, and don't forget beef, much more Brazilian beef flooding the market than ever before, and much less global demand heading into '06.

As for any surprises or other calls in the Asian economies specifically. Basically, Katrina is a spike in already severe energy shock. With that, don't look for Korea to hike rates anytime soon (how's that for contrarian?). Japan is critical, and from what everyone says, Koizumi is a shoe in. Outsourcing and medical care appear to be the best plays over there.

Thailand, near and dear to me these days, is interesting. The Baht sold off starting in March. But recently, its much stronger (close to 3% from the Q2 low). The Central Bank in Thailand has also stepped up its rate tigthening in the aftermath of Katrina (50bps just today!) and they are looking to continue the trend. Things are looking good despite volatile exchanges, and despite macro fund pressure on the downside (puds). However, I gotta say I get cold chills up m spine when I recall they just removed the fuel subsidies. What will record spikes do to Thailand's consumer? Will it combine with a macro market sink? I give it even odds, despite the good news in the Gulf these days, and it definitely keeps me awake at night.

Well, I could go on to India and China, but I'll save that for another post. In general though, Chriss has it 100% right that oil prices are gonna make Asia swoon. Trim 0.5%-0.6% off your Asian GDP for 2006.