The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Conventional gauges of value make China’s stocks tempting, particularly amid signs growth may be picking back up. But even if the economic rebound lasts, stocks haven’t been great proxies for corporate growth. Even China bulls should be ursine on the country’s equities.

China’s stocks have plunged over the past year, leaving the 140 companies on MSCI’s index of China stocks trading at just 9 times projected earnings for 2013. That’s historically low for China and lower than stocks in Brazil, Germany, the United Kingdom or even deflation-wracked Japan. Yet China is aiming for 7.5 percent GDP growth this year and the International Monetary Fund forecasts growth next year at 8.2 percent. Signs of a rebound – such as this month’s recovery in HSBC’s China purchasing managers index into expansionary territory – have prompted foreign investors to pile back into China stocks.

Leave aside the debate over why China’s economy is rebounding. That might be a reaction to massive government pump-priming that has worsened overinvestment and promoted reckless credit expansion. The real flaw in buying stocks on hopes of a rebound is that China’s stock markets have long ceased to serve as a way of tapping into its economic growth. In the past decade, as the economy grew at roughly 10 percent a year, Shanghai’s benchmark index has returned a mere 3.4 percent on average.

There are several reasons why. Who can buy stocks is limited – foreigners have only partial access. Corporate governance and insider trading are bigger concerns, though China’s regulators are trying to help. But the stock market’s contribution to China’s new incremental funding – which it calls “total social financing” – has remained stuck around 2 percent for the past decade. Bonds have climbed from 1 percent to roughly 15 percent.

There are other reasons why it might make sense to buy China stocks: dividends could rise if regulators force the 59 listed, state-owned enterprises to disgorge their $167 billion in cash. And opening the market further to foreign investors would tap pent-up demand that could push up prices of the biggest, most liquid stocks. But until the market shakes its image as a casino where vested interests always win, investors would be wrong to mistake China’s low valuations for a bargain.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Barack Obama’s planned trip to Myanmar this month risks rewarding the country’s rulers for a job half-done. The visit would justifiably herald recent reforms and cultivate a key ally as U.S. foreign policy pivots to Asia. But it is sure to antagonize China’s new leaders and could reduce pressure on Myanmar to make the tougher changes it still needs.

Though Obama will be the first serving U.S. president to visit, he may find the red carpet slightly worn. Since Secretary of State Hillary Clinton visited a year ago, British Prime Minister David Cameron, South Korea President Lee Myung-bak and Indian Prime Minister Manmohan Singh have all made the trek.

Still, the trip is fitting of historic change: to end 50 years of isolation, Myanmar has freed Nobel laureate Aung San Suu Kyi along with hundreds of political prisoners, lifted media censorship and held democratic elections.

The country’s economic reforms are equally profound. It ditched a fixed exchange rate in April and has just passed a new investment law tailored to foreign investors. The rules allow 100 percent-owned foreign ventures with no minimum capital in all but a few sensitive industries, according to law firm VDB Loi.

But Myanmar’s toughest reforms lie ahead. It has no independent judiciary; its military is guaranteed a quarter of parliamentary seats and its border areas are torn by ethnic strife. It needs effective land reform to stop property grabs and promote agricultural exports that don’t create Philippine-style rural peonage.

Obama may agree with President Thein Sein that Myanmar’s reform path is irreversible and feel pressure to leapfrog nations like Japan, which have already rushed in. Washington is also clearly eager to add Myanmar to its growing constellation of Asian allies.

But China’s new leaders won’t like such a high-profile visit to a country they view as their back door to Africa and the Gulf. So the U.S. needs to be certain who is in charge. Myanmar’s reforms were undertaken despite Western sanctions – not because of them – in part to escape China’s domination. Though U.S. restrictions remain on the books, Obama has suspended them. Endorsing Myanmar at this stage leaves him with mostly sticks, but few remaining carrots.

By Wayne Arnold

Investors can’t stay mad at Vietnam. Even after a downgrade last month by rating agency Moody’s, they’re willing to lend Hanoi dollars for less. Rising exports have helped restore reserves and avert a potential balance of payments crisis, while top officials have apologised for economic mismanagement. In a world awash with cash, however, investors are all too eager to forgive and forget.

For a country whose bonds are rated as junk, Vietnam doesn’t borrow like one: last week, yields on its 10-year U.S. dollar bonds dropped to 4.18 percent – the lowest level since they were issued in 2010. That’s just 2.5 percentage points above equivalent U.S. Treasuries. The cost of insuring Vietnam’s debt has dropped to its lowest in two years.

That’s all the more striking because earlier this year Vietnam looked like it might need financial assistance from the International Monetary Fund. After years of overinvestment, corruption and half-hearted reform, Vietnam was hit by a correspondingly painful slump. Higher interest rates have lowered inflation to single digits from 23 percent, but growth has slumped, with the government projecting GDP expansion of 5.2 percent this year, below its target of between 6 percent and 6.5 percent.

Slower growth has cooled import demand, allowing rising exports of clothing and electronics to pull Vietnam to a rare trade surplus. But after expanding at an average of roughly 33 percent a year between 2007 and 2011, credit has stalled, leaving banks saddled with nonperforming loans that likely exceed 10 percent of their total loan books. The prospect of a government bailout prompted Moody’s to cut Vietnam’s rating to the same level as sovereign delinquent Argentina.

No wonder Vietnam’s prime minister felt obliged to apologize last month for mismanaging the economy. As far as investors are concerned, though, he needn’t have bothered. Vast money printing by central banks in the United States, Europe and Japan has sent a wave of cash searching the globe for higher returns. The influx has forced Hong Kong to fight to keep its own dollar from rising and prompted the Philippines to talk about imposing capital controls. When money is this hot, even Vietnam’s mistakes are quickly forgiven.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Asia’s export engine could remain stuck in neutral as long as Europe and China are slowing. An uptick in September exports has buoyed hopes for a U.S.-led rebound in regional trade. But in the past decade, Asian economies have shifted focus to Europe and responded to China’s rise by supplying the manufacturing juggernaut. A U.S. upturn alone won’t be enough.

The numbers from the six big Asian export economies that have reported September trade data so far are tantalizing: exports from both China and Taiwan rose roughly 10 percent compared with the same month a year ago. Even South Korea, the canary of the global trade coalmine, saw its export decline slow from 6 percent in August to just 2 percent in September. Taken together with encouraging signs from the U.S. housing market, the data has unleashed a flutter of cautious optimism.

On closer inspection, though, the recovery appears to be a mirage: Japan’s exports slid 10 percent in September, and Singapore’s were down 6 percent. Worse, for the third quarter as a whole, exports from the six economies combined were unchanged from the same period of 2011. As Europe now rivals the United States as the group’s largest export destination, the 12 percent drop in exports to the continent more than offset a nearly 3 percent increase in exports to the United States.

The other reason for caution is China. The country is now the biggest export destination for most Asian economies, which supply it with raw materials, components and machinery. True, many of these are used in goods that China itself then exports. But as China develops, it is also becoming a bigger end-consumer of Asian products. In the past decade, the proportion of imports that China ends up re-exporting has halved.

China’s slowdown, therefore, is putting further downward pressure on the rest of Asia. Exports from the five other Asian economies to China dropped by 7 percent in the third quarter, to $6.6 billion. That rivals the $6.7 billion drop in exports from the same economies to Europe. Until both Europe and China recover their taste for imports, therefore, Asia may find little solace in a U.S. recovery.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Squabbles over remote islands have sparked a Chinese backlash against Japanese brands. But China’s slowing economy is having an even bigger impact on Japan’s exports. And while China has toppled the U.S. as Japan’s biggest market, both nations face a common economic enemy in the form of plunging demand from Europe.

The slump in Japan’s exports in September may seem a direct hit from violent anti-Japanese demonstrations last month over a disputed group of islands in the East China Sea. After Japanese auto dealerships were torched and a mob in Xi’an assaulted an unlucky Toyota Corolla owner, sales of Japanese cars have plummeted. Earlier this month, Toyota said China sales in September halved from the same month a year ago. That’s consistent with the 10 percent decline in overall Japanese exports and a 14 percent drop in shipments to China.

But the protests are really a symptom of China’s deeper economic trouble – a sharp slowdown in domestic growth combined with sluggish demand for its own exports. Economic pressure shortens the public fuse, and nationalism is an all-too-tempting way for politicians to deflect blame. Japanese exports to China have been falling since late last year – they’re down 10 percent so far this year, and 12 percent in the third quarter.

China is Japan’s largest export market, overtaking the European Union in 2006 and the United States in 2009. And while the country is a growing consumer of Japanese goods, most of what it imports is the heavy industrial machinery needed to make the products that Japan used to manufacture. The only bright spot for either country is a sluggish recovery in U.S. demand. Japan’s exports to the United States rose 5 percent in the third quarter; China’s were up 3 percent.

If there is a word for what really ails Japanese exports it is neither Diaoyu nor Senkaku, but Europe. Japan’s exports to the European Union dropped 23 percent in the third quarter, their sharpest decline since 2009. China’s exports to the same destination were down 40 percent over the same period, the largest drop since at least 1990. When it comes to exports, China and Japan share a common foe.

By Wayne Arnold

It sometimes seems like every little thing is conspiring against Indonesia’s economy: poor infrastructure, political corruption, regulatory caprice and bureaucratic inertia. Falling commodity prices threaten to reverse the spread of wealth to poorer parts of the archipelago. But Indonesia’s very immaturity gives it resilience to muddle through.

The next two years promise to test believers’ faith in Indonesia. Presidential elections are due in 2014, and with the incumbent, Susilo Bambang Yudhoyono, unable to run for a third 5-year term, campaigning has already begun.  Elections are a recipe for instability: Southeast Asia’s largest economy sprawls across more than 17,000 islands, with 300 ethnic groups, 742 languages and dialects.

Campaign financing is likely to worsen already widespread corruption.  Despite an anti-corruption agency with a 100 percent conviction rate, Indonesia slipped last year from 96th on Transparency International’s Corruption Perceptions Index in 2002 to 100th. The resources boom created a bonanza for local officials empowered by a move after the fall of former dictator Suharto in 1998 to decentralize Jakarta’s control. That precipitated the rise of the almighty bupati, district regents whose licensing power can single-handedly determine the fate of big investments.

Fear of the anti-corruption campaign is also likely to intensify bureaucratic inertia. Scrupulous officials are making sure they don’t seal deals before all the i’s are dotted and t’s crossed. As a result, investment approvals have yet to recover to pre-crisis levels.

These hurdles coincide with a recent rise in resource nationalism: after years of liberalizing investment rules to lure foreigners, the boom prompted a roll-back under the current government. Concerns that rapidly growing mining investment has increased Indonesia’s reliance on exporting dirt without financing industrial development inspired ham-fisted rules requiring foreign miners to sell at least half their stakes within five years of production. It also led to a ban on unprocessed ore exports.

Falling prices for Indonesia’s key export commodities are a new worry. Coal’s 36 percent decline in the past year won’t have much direct impact on the economy; though Indonesia is the largest exporter of thermal coal, coal exports represent only about 4 percent of GDP. But the slump could hurt companies in boom towns that have borrowed to buy property and build export infrastructure. More worrisome is the 14 percent drop in palm oil, which employs roughly 4 million Indonesians, according to Citigroup, most of them in the poorest parts of the archipelago. The slump in commodities threatens to reverse an economic rebalancing that was underway just when Indonesia’s political temperature is at its highest.

Oil has gone in the opposite direction, rising 5 percent. Indonesia is an oil and gas exporter, but has to import refined fuel. The combination of rising fuel costs and capital good imports against lower export demand has helped throw Indonesia’s current account into its biggest deficit in 16 years and raised the government’s projected cost for fuel subsidies by more than 50 percent. That has helped push Indonesia’s currency, the rupiah, down almost 8 percent in the past year.

But this is not an unfamiliar predicament to Indonesia, which often seems to lurch from one crisis to another. Since the financial upheaval that toppled former dictator Suharto in 1998, Indonesia has regained a self-righting tendency. It has halved its reliance on exports, to 24 percent of GDP. And despite all its hurdles to investment, growth has averaged 5.5 percent for the past decade, unemployment has been falling since 2005 and per-capita incomes have quadrupled, to roughly $3,500.

More companies are moving into Indonesia to take advantage of one of Asia’s largest, and youngest, populations. Foreign direct investment recovered in the second quarter to $3.9 billion after two consecutive declines. Japanese carmakers, boycotted in China, are expanding production in Indonesia. Unilever is planning a palm-oil processing plant and both Foxconn and Samsung Electronics have plans to shift some production to the country.

Even Indonesia’s fractious politics lend it ballast. Democracy and decentralization, though they have worsened corruption, provide a pressure valve for social discontent. So when Yudhoyono leaves office in 2014, he will mark a watershed in Indonesian stability, becoming the first directly elected president to serve not one, but two terms, and hand over power peacefully to a directly elected successor. Indonesia is sure to remain frustrating for many investors, but don’t fret too much for it. Everything’s gonna be alright.

By Wayne Arnold

Corporate China appears to be beating the country’s lenders at their own game. Even as banks heap credit into China’s economy to keep its credit-fuelled growth from crashing, companies are handing out credit to their own customers. That may help keep the economy revving, but the risk is that past-due bills make it harder for companies to service mounting debt.

Loans from China’s banks have been growing at roughly 16 percent a year. Expanding credit helps to mitigate slowing growth. But extending credit when business opportunities are declining can be like throwing good money after bad, as lenders let indebted companies pay off old loans with new ones rather than allow them to fail. The result is the kind of deflationary downturn Japan has experienced, where refinancing crowds out new investment.

China’s companies are extending credit to their customers at an even quicker rate. Receivables at companies listed on Shanghai’s stock exchange now amount to roughly $190 billion, equivalent to 30 percent of all bank lending, with over half of those outstanding bills owed to just 60 state-controlled companies. Receivables at these firms have been climbing at roughly 30 percent a year for the past four quarters, while the length of time companies are lending to customers has climbed from about 33 days a year ago to 41 days. China Shipbuilding’s receivables have climbed 50 percent in the past year. China Merchants Property’s receivables have doubled.

A receivable represents a zero-interest loan, and the amount of credit a company extends to customers usually rises when times are good and falls when the outlook is uncertain. If companies fail to rein in customer credit, the risk is that unpaid bills force otherwise healthy companies to default on their own loans. This so-called triangular debt deepened Asia’s financial crisis in 1997 and 1998.

It’s a troubling sign, therefore, when companies extend credit terms in tough times. It suggests that they believe money earned tomorrow will be worth more than money earned today, or in other words, deflation. That helps explain why the average listed Japanese company waits 96 days for repayment. Increasingly generous corporate credit may be another ill omen for China’s economy.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It may take just 40 minutes to replace the gizmo responsible for Toyota’s latest embarrassment, but with 7.4 million cars to fix, that’s 565 years of mechanic time. Actually it is neither the first nor the most serious of Toyota’s recent difficulties. But the Japanese automaker’s problems are beginning to look unending.

After battling back to profit after the global crisis in 2009, it was struck with a series of product faults. In early 2011, the devastating earthquake and tsunami crippled production. And violent anti-Japanese demonstrations in China over disputed islands cut its sales there in half last month as patriotic consumers switched to other countries’ cars.

Considering the succession of setbacks, it is testament to Toyota’s strength that it has soldiered on as well as it has. And while the latest product problem is extensive – it affects a broad range of worldwide models and is the largest recall since Ford’s faulty ignitions in 1996 – it is unlikely to sink the company.

Toyota’s quarterly profit is likely to be several times the cost of repairs. Say the bill comes to half the $2 billion set aside in 2010 to deal with faulty accelerators: it would swallow only about 26 percent of the company’s profit in the latest three-month reporting period. Toyota can still borrow 10-year money at roughly 1.5 percent and has $27.4 billion in cash. Toyota recently regained its position as the world’s best-selling marque, with vehicle sales rising 86 percent in the second quarter of this year. China, meanwhile, only accounts for about 12 percent of global sales.

Still, fresh quality issues could hurt Toyota in the United States. Sales there had been recovering nicely. But rivals such as South Korea’s Hyundai have narrowed the gap in terms of perceived quality, making it harder for Toyota to charge the premium required to justify making half its cars at home in Japan. The yen has risen 49 percent against the U.S. dollar in the past five years, and Toyota estimated that cost it $3 billion in its latest fiscal year.

Toyota is planning to shift about a seventh of Japanese production to India, Thailand and North America. That will help cut costs, but losing the “Made in Japan” label may only make it harder for Toyota to convince consumers that it can steer clear of alarming product glitches in future.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

How do India’s investors spell relief? Palaniappan Chidambaram. Stocks have soared since word broke in June that the urbane lawyer might take a third turn as finance chief. His return in August has proved an antidote to the errors of his predecessor Pranab Mukherjee, and has revived foreign buying. But the rally will only last if the latest reforms boost flagging growth.

Chidambaram’s latest feat is to promise a National Investment Board, a one-stop shop for investment approvals that could replace the bureaucratic wilderness that helps put India below the West Bank and Gaza in the World Bank’s ease-of-doing-business rankings.

A lawyer from Tamil Nadu with a business degree from Harvard, Chidambaram knows what investors want to hear. That makes his encore a welcome relief to Mukherjee’s widely panned tenure. Before being bumped up to the presidency in late June, the finance minister presided over an anti-investment rollback, threatening to levy taxes retroactively on foreigners, while failing to arrest a slide in government finances. The government once expected annual GDP growth close to 8 percent; the Asian Development Bank’s most recent forecast is for just 5.6 percent this year. As a result, investors pulled $1.93 billion from India in the second quarter, helping send the rupee to a record low.

The mere prospect of Chidambaram’s return helped to revive faith. Since May, Mumbai’s benchmark stock index has risen almost 19 percent: investors pumped $2.1 billion back into the country in July alone. Since his reappointment in August, Chidambaram has not disappointed. After winning ruling Congress party kingmaker Sonia Gandhi’s support, he unveiled September’s “big bang Friday” reforms – cutting diesel fuel subsidies while easing restrictions on foreign investment in retail, airlines and broadcasting. India has since lifted rules on overseas borrowing and moved to open the insurance sector.

The promised National Investment Board may prove even more significant. But investors will eventually need to see evidence that new investment is eliminating infrastructure bottlenecks, reviving GDP growth and corporate earnings. Indian stocks now trade close to 14 times this year’s expected earnings, up from a multiple of about 12 times in the spring. If Chidambaram succeeds in pulling India’s growth story out of the hat, the revival will be more than justified.

By Wayne Arnold

HONG KONG (Reuters Breakingviews) – How do India’s investors spell relief? Palaniappan Chidambaram. Stocks have soared since word broke in June that the urbane lawyer might take a third turn as finance chief. His return in August has proved an antidote to the errors of his predecessor Pranab Mukherjee, and has revived foreign buying. But the rally will only last if the latest reforms boost flagging growth.

Chidambaram’s latest feat is to promise a National Investment Board, a one-stop shop for investment approvals that could replace the bureaucratic wilderness that helps put India below the West Bank and Gaza in the World Bank’s ease-of-doing-business rankings.

A lawyer from Tamil Nadu with a business degree from Harvard, Chidambaram knows what investors want to hear. That makes his encore a welcome relief to Mukherjee’s widely panned tenure. Before being bumped up to the presidency in late June, the finance minister presided over an anti-investment rollback, threatening to levy taxes retroactively on foreigners, while failing to arrest a slide in government finances. The government once expected annual GDP growth close to 8 percent; the Asian Development Bank’s most recent forecast is for just 5.6 percent this year. As a result, investors pulled $1.93 billion from India in the second quarter, helping send the rupee to a record low.

The mere prospect of Chidambaram’s return helped to revive faith. Since May, Mumbai’s benchmark stock index has risen almost 19 percent: investors pumped $2.1 billion back into the country in July alone. Since his reappointment in August, Chidambaram has not disappointed. After winning ruling Congress party kingmaker Sonia Gandhi’s support, he unveiled September’s “big bang Friday” reforms – cutting diesel fuel subsidies while easing restrictions on foreign investment in retail, airlines and broadcasting. India has since lifted rules on overseas borrowing and moved to open the insurance sector.

The promised National Investment Board may prove even more significant. But investors will eventually need to see evidence that new investment is eliminating infrastructure bottlenecks, reviving GDP growth and corporate earnings. Indian stocks now trade close to 14 times this year’s expected earnings, up from a multiple of about 12 times in the spring. If Chidambaram succeeds in pulling India’s growth story out of the hat, the revival will be more than justified.

CONTEXT NEWS

- Finance Minister Palaniappan Chidambaram said on October 4 that the cabinet was likely to accept a proposal to set up a National Investment Board.

- The board would help to speed up the clearance process for infrastructure projects, he said.

- Chidambaram said that notes on the board had already been circulated to relevant ministries ahead of a discussion at the next Cabinet meeting. Chidambaram made the comments while speaking to journalists in New Delhi, according to India’s Economic Times.

- The Sensex rose by 18 percent between January 1 and October 5 this year.

(Editing by Peter Thal Larsen and Katrina Hamlin)