An optimistic (from Asians' point of view) assessment [Archive] - Glock Talk

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antediluvianist
09-07-2007, 19:03
From Mr. Louis Gave of Gavekal Research (posted by Mr. caleb in another forum):

Quote:
``During the Asian crisis, the nadir of the markets involved a number of policy-related events - the Hong Kong government's intervention in its domestic equity market, the bailout of LTCM by a Fed-organized consortium, central bank rate cuts, etc. The central banks took their time in acting (the Asian Crisis started in July 1997, and the rescue did not come until October 1998), since the balance sheets of the Western World's banks did not look threatened. However, once bank shares started collapsing, central banks were quick to act…


`` After the Asian crisis, the extra liquidity injected into the system went into the technology sector, and then into housing (which, at the time, offered strong fundamentals). In the late 1990s, these were the "strong links" in the global financial system. Ironically, 10 years to the day after the Asian crisis, Asia has now become the strong link in the global system. To put it another way, money in Asia to this day is still cheap and plentiful. Following the Fed rate cuts and liquidity injections, money will be even cheaper and even more plentiful. As we see it, this can only have a positive impact on asset prices around the region…

`` The Western central banks' cuts in interest rates and injections of liquidity will force Asian policymakers to make a choice. Will they:


`` Allow their currencies to appreciate against Western World currencies? If this happens, it will mark the final unraveling of the effects of the Asian Crisis, and Asian countries should see the same kind of consumption boom which the Western World experienced between 1997 and 2007.


`` Continue to maintain their currencies at an artificially low level against Western World currencies? To do this, Asian policymakers will have little choice but to print massive amounts of money and run the risk of domestic inflation.


``Either way, it seems to us that investors in Asian assets are today sitting in a very comfortable position. Either, we will see massive currency appreciation and a boom in domestic consumption, or we will witness large liquidity injections which almost ipso facto guarantee a sharp rise in asset prices.”