Asia’s current IPO window is closing smartly ahead of the traditional summer break. And not before time for many. Bankers will be heading for the beach or to the in-laws back home relieved that markets remain intact and hoping that they’re still there when they get back to their desks.
They have reason to be nervous. The market collapses of 1997 and 2000 are etched into the memories of anyone who has been in Asia long enough. Yet no one is expecting the current tremors to be anything more than that. The truth is that Asia is in much better shape economically and fiscally this time around. Deficits have been replaced with surpluses, companies and economies are under-leveraged rather than stretched and central bankers are concerned with containing currency appreciation rather than preventing a slide.
Assuming we are not heading for meltdown, what is likely to happen? Probably more of the same. Asian economies will keep on exporting to the US consumer and bailing out the government by buying its IOUs, although the rate at which they do so might start to slow. Although every economist acknowledges that the structural imbalances in the global economy (for which read American profligacy) cannot continue indefinitely, few are brave enough to make a judgement on how or when this inevitable accident is going to happen.
This means that the market will mete out its own discipline, pushing the dollar into a long slide downwards, with Asian central bankers doing all they can to arrest it. If US rates continue to rise, the sucking sound of liquidity being drained from Asian markets will likely get louder, meaning that the days of easy money and wholesale asset inflation in Asia are behind us.
Fund managers appear to agree, and have started to dump Asian stocks, turning net sellers in the past three months from massively overweight a year ago. Although the sell-off in regional equities might not be over, Merrill Lynch believes recent market corrections already present something of an opportunity. With Asia ex-Japan now trading on a more reasonable price to book ratio of 1.5 and a PE ratio of about 18, now is the time to do some late spring-cleaning of portfolios, says the bank, dumping weaker stocks and concentrating on higher-quality, more defensive counters.