The Great Debate UK

Live webchat – Investing in Asia

from Global Investing:

Investors love those emerging markets

No question that investors are in the throes of passion over emerging markets. The latest Reuters asset allocation polls show investors pouring money into Asian and Latin American stocks in October to the detriment of U.S. and euro zone equities. Exposure to equities in emerging Europe, Asia ex-Japan, Latin America and Africa/Middle East rose to 15.6 percent of a typical stock portfolio from 14.3 percent a month earlier.

from MacroScope:

What are the risks to growth?

Mike Dicks, chief economist and blogger at Barclays Wealth, has identified what he sees as the three biggest problems facing the global economy, and conveniently found that they are linked with three separate regions.

First, there is the risk that U.S., t consumers won't increase spending. Dicks notes that the increase in U.S. consumption has been "extremely moderate" and far less than after previous recessions. His firm has lowered is U.S. GDP forecast for 2011 to 2.7 percent from a bit over 3 percent.

Next comes the euro zone. While the wealth manager is not looking for any immediate collapse in EMU, Dicks reckons that without the ability to devalue, Greece and other struggling countries won't see any great improvement in competitiveness. Germany, in the meantime, has sped up plans to cut its own deficit.  It leaves the Barclays Wealth's euro zone GDP forecast at just 1 percent for next year.

Finally, Asian growth is under threat from tightening policies. Dicks says this is the least problem of the three, but there are indications that powerhouse China needs a period of slower growth to get things under control.

So,  there are three problems -- and a not very bright outlook. Are there any others? Or are these three all being overstated?

New gateway for British business opens in Asia

- Ash Verma is Chairman, Gateway Business Consultants Limited and Founder of Gateway Asia. The opinions expressed are his own. -

London has long had a reputation as a city where entrepreneurs from Asia have come to seek their fortune.  From its early 19th century roots when Sake Dean Mahomed opened up Britain’s first Indian restaurant and introduced the city to shampoo, London’s Indian diaspora has now grown into one of the largest communities outside the country. The Chinese community in London, too, is Europe’s oldest and largest.

London’s entrepreneurs should therefore be among the best placed in the world to export back to massively expanding markets in India and China. However, despite these powerful diasporas, we are not as a city or country doing as well as we should as exporters to these countries.

UK exports to India did increase last year but that was only because the values of diamonds shot up as a result of the global economic downturn. Only around one percent of the UK’s total exports go to India despite the UK having a Diaspora of one million people.  In its exports to China the UK is still a long way behind countries including Australia and Germany. Nine out of ten businesses in Britain don’t export at all.  And it is many of these companies that could find fertile markets if they looked east.  While there is no shortage of initiatives branded as helping exporters, they do not always offer the business to business hands-on help that research shows that companies want before exporting to India and China.

Even for those with family links, these countries remain difficult places to do business.  According to a report from the Department of Business, Enterprise and Regulatory Reform, India and China rank 122nd and 183rd respectively in estimates of their ease for businesses  – compared to a sixth place ranking for the UK. Our research shows that companies are being put off by practical obstacles – from coping with exchange rate fluctuation to understanding letters of credit and preparing goods for transport. Many fear that they will see their property rights get lost in a thicket of bureaucracy. Though much Olympic-related attention goes to the multiculturalism in the east of the City, it is in the western boroughs around Heathrow where Chinese, Gujurati, Tamil, Punjabi and Pakistani minority communities have built up strong small and family businesses that offer the greatest potential for trade links. We have attempted to fill the gaps in provision for SMEs by establishing “Gateway Asia” – the largest and most coordinated attempt to help West London’s small businesses build on their “family connections” to export to India and China.

The 1.2 million pound Gateway Asia Programme, which provides free support to any SME under 250 employees, funded by a mixture of public and private sector partners including HSBC, BAA, TCS and the Mayor’s London Development Agency, is expected to help around 250 businesses. The initiative will give free hard-nosed practical advice through ten workshops and one-to-one advice on the practical obstacles that exporters to the East will face – from transport to packaging.  One of the partners, HSBC, are using their branch network across London and overseas to support trade delegations and to spot potential collaborations between their clients. Meanwhile, thethe Confederation of Indian Industry will put London businesses in touch with potential trading partners in India. Among the first to sign up is the American Muffin Company, a business based in West London that wants to export its range of luxury brownies and cookies – currently supplied to UK supermarkets – into India.   And Bina Mistry, the writer and singer of  Indian hit “Hot, Hot, Hot” from Bend it Like Beckham is being helped by Gateway Asia’s help to export singing and dancing shows back to Bollywood. This could be a lucrative export market for the wealth of film producers, actors, scriptwriters, animators and events management companies working in West London. Napoleon once said of China. “Let her sleep, for when she awakes she will shake the world”.  China and India have long-since awakened as powerful traders; it is London’s businesses that need to rise from their slumber if they are to use their natural advantages to prosper in the East.

Shining a light on China’s secret “Black Jails”

- Phelim Kine is an Asia researcher for Human Rights Watch. The opinions expressed are her own. -

When 15-year-old Wang Xiaomei made the long trip from Gansu province to Beijing last year, she hoped to find justice for her family. Instead, she met with abuse.

First, Wang was abducted by plainclothes Gansu officials, who imprisoned her incommunicado for two months in a “black jail”—an illegal detention facility.

Two days before her September 13, 2008 release, Wang’s captors beat her so badly they knocked out one of her teeth. Wang’s victimizers have never been brought to justice.

Worse still, Wang’s experience—which stands in stark contrast to the Chinese government’s claims of fealty to the rule of law—is not unique. A new Human Rights Watch report released today, “An Alleyway in Hell: China’s Abusive ‘Black Jails’,” exposes the routine and severe human rights abuses perpetrated against detainees in these secret facilities.

Our research shows that Wang is just one of estimated thousands of people abducted off the streets of Chinese cities and held incommunicado for weeks or months. Inside these unlawful, secret detention facilities detainees are beaten, sexually abused, deprived of food, sleep and medical care, and subject to theft, extortion and intimidation at the hands of their guards.

And, as Wang’s case shows, children aren’t spared the dangers and indignities of black jail detention. These facilities exist outside of China’s official prison system, and are often located in state-owned hotels, nursing homes and psychiatric hospitals.

Asia’s exchange rates set for centre stage

-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

November meetings of leaders from the Group of 20 industrialized nations may not have had exchange rates on the agenda, but the notes prepared by the International Monetary Fund included some meaty foreign exchange references.

The first is the view that although the dollar has moved closer to medium-term equilibrium it “still remains on the strong side”.  The second is the (widely held) view that the dollar “is now serving as the funding currency for carry trades” which has contributed to upward pressure on the euro.

The third was the acknowledgement that the Chinese renminbi has depreciated in real effective terms and remains significantly undervalued from a medium-term perspective.  To deal with the latter the IMF prescribed the usual recipe; namely that “exchange rate appreciation would help limit capital flows” and “facilitate a shift towards domestic consumption that is needed in many emerging economies, notably those with large external surpluses”.

None of the points put forward by the IMF on foreign exchange are ground breaking.  However, the fact that the IMF judged it appropriate to outline these issues ahead of the G20 meetings is suggestive of the economic and thus political relevance of these issues.  China’s exchange rate peg is clearly at the forefront of these issues.

Also significant is the IMF’s mention of the upward pressure on the euro, which could be seen as acknowledging that the euro (along with the yen) is bearing the brunt of the dollar’s downward adjustment.  By recognising that the dollar is “still on the strong side”, the IMF may be warning that the upward pressure on the euro may have further to run.

Now that the euro/dollar is back at 1.500, the market will again begin to wonder whether at some point the authorities may act to stem the appreciation of the euro/dollar.  Intervention in euro/dollar cannot be completely ruled out but it remains a remote possibility because it would avoid the real issue.  The dollar’s decline is being driven by inflows into higher yielding markets which is unlikely to be turned around by intervention in euro/dollar as long as the market is forecasting low Fed rates and as long as risk appetite holds.  The rise in the euro vs the dollar is merely a symptom of these flows but the appreciation of the effective euro (and that of the yen) is being compounded by the fact that as the euro rises vs the dollar it also rises vs the renminbi.   At present, the effective euro exchange rate is creeping back to its December 2008 high which represents an all time high.   Rather than seek to rebalance euro/dollar, officials should be increasing pressure on China to address its policy regarding its exchange rate.