Can Asia remain unscathed ?

Will economic crisis engulf some Asia Economies too ?

Investment industry is sleeping, eating and drinking “Greece”. The obsession can partly be blamed for noise trading and gigantic credit default spreads on Greece’s government debt. We have unique situation in the world now where almost every developed nation (except Germany and to some extent Japan) has got itself drenched with dirt and filth. Lehman did it for US and swelling public debt and deficits in a recessionary environment did it for UK and Euro zone. Asia Pacific is still sitting pretty, but it’s not easy to do business with someone who’s covered with dirt. Asia is fidgeting the most at the moment with the question “Can it remain clean while its counterparts are covered with dirt?”. Its very difficult is my initial and only reaction.

Japanese public debt to GDP ratio is the highest in the world, its population is graying, it has battled near zero growth for a decade and going forward fundamentals are not looking very good; it’s looking at a dip right in the face. China is sitting pretty and rightly so, it ignored all that was going around in expansionary business cycle and continued its meticulous ride upwards. Currency revaluation for Rembimi will be slow and gradual, without hurting China in a big way. India is the only country in Asia with a trade deficit. The high growth, young population and reformist policies have some how bullet proofed the high fiscal deficit in India. But sharp and furious bullets could pierce right through its defenses. 

My sense is that it started like a tsunami in North Atlantic and is slowly coming towards the Asia Pacific region. Japan, India, Indonesia, Thailand, Philippines are vulnerable economies in the event of a flight to safety. Each has it own unique challenges and balancing acts but each is exposed to the vagaries of a nasty double dip. Add Dubai and ‘Cheabol’ to the curry and you’ve got a “Red Hot Chili Pepper” menu. I would buy a CDS on Japanese Debt with a medium term investment horizon and sell a CDS on German/ Chinese Debt (I know, I’ll find no takers for this sell order). I’m still bullish on long terms prospects of India, ‘Phir Bhi Dil hai  Hindustani”.