A Decade After Its Crisis, Asia Soars

08/02/2007 12:00 am EST

Focus: GLOBAL

Yiannis Mostrous

Editor, The Capitalist Times

Yiannis G. Mostrous, editor of the Silk Road Investor, traces the big changes that have transformed Asia since the collapse of the Thai baht triggered the Asian financial crisis ten years ago.

The Thai currency collapsed on July 2, 1997 after the Bank of Thailand spent months trying to defend it. The Asian Crisis had officially started, and the whole Pacific Rim spiraled down. That day, East Asia lost its export pricing power, and China took over.

But ten years later, the region-led by China and India-has been able to heal its wounds and move forward. More important, Asian countries have worked hard to reform their economies, move towards privatization, reduce corruption, and increase tax collection. These changes are structural, not superficial; Asia has righted itself, and investors can expect even better times ahead.

In the past three years, Asian gross domestic product growth has averaged 8%, outperforming the 5% the global economy registered during the same period. The region's share of world GDP is touching 15%. Even as Asia has realized this kind of growth, inflation has remained low. (The average annual rate for the last three years is 2.2%.) And the region enjoys a current account surplus of $374 billion versus a deficit of $28 billion in 1996. The region's foreign exchange reserves have reached $2.4 trillion, up from $500 billion ten years ago.

At the same time, the corporate sector has improved dramatically. The most important change has been the decrease in leverage. The debt-to-equity ratio for Asian companies is currently estimated at about 34%, substantially lower than the 75% when the contagion hit.

The bottom line is that Asia continues to grow. China and India remain the main engines, but there's room for everyone.

Growth via cheap production and exports, [however], is becoming less of an option for
East Asia. This is now China's domain, a reality not lost on its neighbors. Country officials have realized that the crony capitalism business model can't work anymore, and total dependence on US demand for growth isn't a viable long-term solution.

Countries such as Singapore and Malaysia, as well as Hong Kong, are improving their living environments to attract more international human capital; this will allow them to capitalize on the entrepreneurial spirit these people bring with them.

Reinventing themselves in an effort to survive in the new, China-dominated global economic environment has become the most important aspect of their economic growth plans. One of the most characteristic and successful examples of this transformation is Singapore, [which] has been repositioning itself as a banking, convention, and entertainment hub in Asia, a multiyear undertaking that observers expect to succeed. The government has initiated several projects that will result in more than $10 billion in investments in the tourism sector during the next five years.

[You can get] comprehensive exposure to Asia through a handful of open- and closed-end funds. Specifically, take a look at Guinness Atkinson Asia Pacific Dividend Fund (GAADX), Korea Equity Fund (NYSE: KEF) and Matthews India Fund (MINDX).

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