COMMENTARY
Commentary:  Weathering the Storm
October 30, 2008
Christopher Bjorke

The uncertainty infecting Western markets has not spared Asian markets, making for a rocky few weeks for equities and currencies and spurring governments to take what action they can to hold off crisis.

While emerging Asia still looks like the best hope for growth in an otherwise slumping global economy, the region is still being buffeted by the effects of the credit crisis and financial meltdown.

China
Fearing a drop in export demand due to downturns in foreign markets, the People’s Bank of China lowered key interest rates Oct. 29. The one-year lending rate went from 6.93% to 6.66% and the deposit rate dropped from 3.87% to 3.60%, according to Bloomberg.

China, along with other Asian economies that depend on it to buy their exports, is trying to keep its exporting companies afloat during the crisis while at the same time building up domestic consumption to pick up the economic slack. Key export sectors have suffered, though. Toy manufacturers in the Pearl River Delta experienced a spike in recent bankruptcies and closures. The latest consumer goods scandal, this time centering on baby formula and eggs tainted with melamine, is another blow to food exporters.

Japan
The yen made a dramatic climb against other currencies in the past week, rising 11% against the dollar and 21% against the euro. The sharp appreciation and recession fears were grim news for Japan’s major brand names such as Toyota and Sony, which saw big losses in share prices. This contributed to big losses by the country’s financial institutions, which hold large stakes in the Japanese stock market.

South Korea
Korea followed the lead of other interest rate-slashing governments when its central bank lowered the country’s main interest rate to 4.25% this week. The recent days had taken a toll on the Korean currency, driving the won down to its lowest level in a decade. Korea’s equity markets also suffered double-digit losses over the past two weeks.

India
The Indian rupee had the second-worst performance after the won, according to Bloomberg. It hit record lows against the dollar this week, but rebounded some as governments made moves to shore up faltering markets.

Indonesia
The government announced an emergency plan this week to save its foundering financial industry, asking companies to repatriate capital and extending government financing to exporters, according to the Financial Times.

Challenging conditions

Since the start of the West’s dramatic period of imploding investment banks, multi-billion-dollar government bailouts and the partial nationalization of the banking industry, each big market shift and each new attempt to stem the damage is met with the question of is this the end yet?

For Asia, especially developing Asia, the big question of recent years is whether the decoupling of the U.S. economy with the rest of the world is a reality or a just a theory. As Asian countries scramble to hold off the worst fallout of the financial crisis, the rest of the world is anxious for the answer.

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