Asia’s stock markets have already got off to a flying start in 2007. Although most investor attention seems to be focused on mainland China and Vietnam, where analysts are beginning to sound cautious on valuations, other exchanges have also performed strongly.
There appears to be mounting evidence to support higher valuations for most Asian markets, according to Lehman Brothers’ senior economist in Asia, Rob Subbaraman. “We believe conditions are set for Asia ex-Japan to become new engines of growth,” he says. “Forecast lower oil prices this year will act like a shot in the arm for current account surpluses in the region.”
Although Subbaraman cautions that the region is still heavily trade-oriented – Lehman calculates that some two-thirds of Asian trade ends up outside the region – Subbaraman notes that governments’ healthy financial books in the region provide plenty of firepower to stimulate economies if necessary. Public debt in Asia ex-Japan is already below the OECD average, save in India and the Philippines. Even there, government debt levels, although high, have been falling of late.
Labour markets in the region are tightening, say Lehman analysts, with unemployment of about 3.6%. That is likely to lead to increasing income levels and, with it, rising consumer demand within Asian economies.