The Asian market rally roared on last week as strong
corporate earnings and cheap liquidity offset the impact of the
Greek debt crisis.
Hong Kongs Hang Seng Index closed the week up 1.6%,
Chinas Shanghai Composite 0.1% and Indias Sensex
Asian markets reversed their mid-week losses
triggered by Standard & Poors downgrade of Greek
sovereign debt to junk status as optimism over corporate
earnings grew and markets cheered the US Federal Reserves
decision on Thursday to maintain near-zero interest rates.
Brian Jackson, Hong-Kong based strategist at Royal
Bank of Canada, said: Asian markets were relatively
non-correlated with European markets this week as Asian
government balance sheets are strong.
As foreign investors piled into the region, currencies
continued their four-month climb despite central bank
interventions led by gains in the Indonesian rupiah,
Malaysian ringgit and the Singapore dollar.
By contrast, European markets plummeted over fears that
southern Europes sovereign debt burdens will trigger a
eurozone slowdown although the worries eased moderately
on Friday amid hopes that Germany would agree to a Greek
government bailout next week.
In Asia, markets are banking on the regions business
cycle remaining relatively resilient in the event that the
Greek debt crisis intensifies. South Korea announced
stronger-than-expected industrial production data, with
year-on-year growth picking up from 19.1% to 22.1%, buoyed by a
pick up in exports.
Jackson said: The region could grow 8% this
year. Asian banks have little exposure to troubled government
debt in the eurozone so the market confidence that the
eurozone sovereign debt problems wont materially affect
Asia is justified.
Koreas Financial Supervisory Service said on Wednesday
that domestic financial firms have a total $400 million of
loans and securities linked to Greece and Portugal, which
accounts for 0.76% of the countrys total exposures.
In periods of market distress, emerging Asian markets
typically sell off, as investors shun assets that are perceived
to be risky and migrate to safe-havens in developed markets.
But according to Citi research, the global financial crisis has
rewritten the investment proposition for emerging Asia.
The region offers both higher returns and, in many cases,
less risk relative to much of the developed world, Citi argued.
Asia may benefit from reverse contagion
liquidity inflow into Asia on the back of increasing
credit differentiation, which helps explain why Asian assets
have been remarkably resilient to the escalating EU
Emerging Markets Portfolio Research announced this week that
emerging-market bond funds had the three best weeks on record
this month. About $5 billion flowed into local currency assets,
and $4.66 billion into emerging equity funds in last week
But Antoine van Agtmael, chairman of Emerging Markets
Management, which oversees up to $14 billion of stocks
globally, said the Asian bull market is vulnerable
in the near term, given high valuations of Asian assets and
interest rate hikes.