Asia Like It

Australians used to bemoan the fact that underpinning the country's economy was a natural resources industry that was hardly the stuff of a developed, Western-model nation. The lament went something like: "All we seem to do is dig stuff out of the ground and flog it."
 
Then the orders for raw materials started rolling in from China and other Asian countries that had embarked on manufacturing and infrastructure-building booms. As demand exceeded capacity to supply the diggers hit pay dirt, and the industry became, if not exactly sexy, estimable.

This is one component in a regional grouping that comprises disparate nations, but which also shares a degree of dependence on export demand. The myth of decoupling has been exploded: the idea that ample foreign reserves and a banking sector that had largely avoided the ravages that swept through Western economies has not mitigated the collapse in export markets, or the flight of foreign capital. And the fact that many of these countries - China and India particularly - have large, poor rural populations, with at best an embryonic middle class, means that domestic demand will not be strong enough to take up the slack.

China, the region's powerhouse, will see previously double-digit growth drop back, but still post a rise in GDP which would be the envy of many a Western finance minister, of around 5-6 per cent. Its government has announced measures to boost the economy with infrastructure spending, but this is unlikely to provide any comfort to the hundreds of thousands of former factory workers who have now been rusticated, or to the millions of fresh university graduates with no job prospects. The Chinese authorities are expecting civil unrest. Unrest and political uncertainty, too, feature in other key regional economies, notably those of Thailand, South Korea and India.

But, with all that said, we can look at the Financial Express record of how this sector fared in the last big downturn, in discrete annual return terms. The years 2000-2003 covered a period when the internet bubble had popped, and the repercussions from the Asian banking crisis were still being felt. The Asia Pacific sector reached a nadir in 2000 with an average fall of 18.6 per cent, when other principal investment destinations had yet to start shedding investors' money. They fairly soon caught up, though, with Europe, North America and the UK making double-digit losses in the subsequent two years.

What is interesting is that Asia Pacific funds as a whole managed to mitigate these losses over the same two years: while Europe was dropping 21 per cent in 2001, Asia Pacific was holding relatively firm with just 2.3 per cent shrinkage. Then, as soon as the sparks of an upturn started to become evident in 2003, Asia Pacific was one of the sectors that moved ahead quickly, with a 34 per cent bounce-back. The run of positive returns continued until 2008, when everybody got a cold bath.

Now, in the first three-and a-half months of 2009, the sector has shown itself to be ahead of the game again, posting a gain of 5.4 per cent, against continuing losses in Europe, America and the UK. Australians will not be sorry about continuing to feed China's infrastructure development, and intra-regional trading, allied to hefty balance of payment surpluses, could well see this sector through to pole position as the recovery gathers pace.