The growth expectations for Asia ex-China continue to drop:
The deadly Sars virus, currently sweeping the Asia Pacific region, appears poised to wreak havoc on domestic economies and has already sent equity markets into a sharp downward spiral. The OECD warned this week that the overall economic fallout for the worst affected Asian countries could be significant."The economic impact of this epidemic depends largely on how promptly and effectively the virus can be brought under control," the OECD said, adding that preventative measures were proving particularly disruptive to travel and business.
The World Bank, meanwhile, downgraded its economic growth forecast for East Asia to 5 per cent from 5.5 per cent in its latest forecast, blaming Sars, the Iraq war and other external shocks.Analysts have been careful to keep a sense of proportion over impact of the virus on East Asian economies. Bill Belchere at JP Morgan expects Sars to have a sharp temporary economic impact, rather than provide a sustained hit to the region's growth prospects. That said, Rob Subbaraman at Lehman Brothers noted that heavy damage had already been done.
The impact of Sars has clearly intensified since the outbreak was announced in Hong Kong on March 10. While global equity markets have been boosted by the swift conclusion to the Iraq war, Asian markets have significantly under-performed the US market as each day brought fresh revelations about the spread of the virus. The FTSE Asia-Pacific index, excluding Japan, has lost by 5.8 per cent relative to the S&P Composite since early March. Hong Kong, the hardest hit of the markets, closed at a third consecutive 4½ year low on Friday, dragged down by HSBC Holdings which fell on worries about the prospect of a rise in bankruptcies as the Sars virus batters the local economy. The decline is reflected in a 15.8 per cent fall in the FTSE Hong Kong index relative to the S&P Composite since early March. Chinese equity markets tried to ignore the Sars outbreak until mid-April but then went rapidly went into reverse. Since April 15, the Shanghai B index has lost 10 per cent of its value and has under-performed the S&P composite by 9.3 per cent. Economists have been busy revising down their forecasts for China amid concern over the potential fallout if foreign companies review their operations in the country. Foreign operations are estimated to contribute about half of the nation's exports and almost a third of its economic activity.
The fears were fanned this week by reports that Japan's biggest carmaker, Toyota was recalling its staff from Beijing during the outbreak. Toyota denied the reports. However, other foreign companies including General Electric and Honda are said to be making it easier for expatriate staff to go home or are recalling staff from China. The FTSE Singapore index is down by 9.9 per cent relative to the S&P Composite. Earlier this week, deputy prime minister Lee Hsien Loong said the virus could be catastrophic for the city state as the government introduced tough new powers to jail or fine people who defied strict new quarantine regulations.Taiwan suffered its biggest one day fall for eight months on Thursday as concern about the impact of Sars hit the market. The benchmark weighted index has lost 12.3 per cent relative to the S&P Composite.
Outside Asia, Canada has been incandescent at a World Health Organisation warning against travel to Toronto. However, the WHO is standing by its warning in the face of 16 reported deaths from the virus in the Toronto area. The market, which traditionally moves in step with Wall Street, has significantly underperformed with the FTSE Canada index falling 5.5 per cent relative to the S&P Composite since early March. Travel, tourism and retail stocks have so far borne the brunt of the selling.IATA, the global airline industry body, said this week the Sars crisis, and a resulting plunge in air travel to and from East Asia were devastating for airlines in the area. It maintained its prediction that the already deeply-troubled industry would loose about $10bn this year after cumulative losses of $30bn in 2001 and 2002, which is largely blamed on global economic problems and fears of terrorism. Asian airlines have underperformed the FTSE World index by 23.5 per cent since early March.
Source: Financial Times
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