Greater China overtakes foreign-indebted Asean
Jake van der Kamp
The chart below tells a story about the relative fortunes of Asian markets, a story that is likely to be a continuing one.
Start by taking the daily performance of Asia's main market indices excluding Japan. The reason for excluding Japan is that its market is so big that including it would swamp all other comparisons.
Now, divide each index on a daily basis by that market's US dollar exchange rate to produce US dollar equivalent indices.
(Meanwhile, offer a prayer of thanks for the microprocessor which has made it possible to do this in seconds rather than the months it would take using long division with a pencil and paper.) Next, aggregate these indices, giving each market a weighting equivalent to its share of total market capitalisation in the region as of December last year.
You now have a US dollar index for East Asia (ex-Japan).
Then create a sub-index in the same way for the markets of the mainland (B shares), Hong Kong and Taiwan and create another sub-index for the markets of the Association of Southeast Asian Nations (Asean), taking, for these purposes, Thailand, the Philippines, Malaysia, Singapore and Indonesia.
Finally, show the performance of each of these sub-indices relative to the overall index for East Asia ex-Japan (one divided by the other every day, divided by a subset of one on a fixed date divided by the other on the same fixed date, the whole times 100).
Apologies to those readers whom this leaves behind, but one cannot always discuss investments without a little simple mathematics.
The result is the chart below with a relative comparison base of 100 for the first trading day of January, 1996.
It shows that if, on that date, you had bought into the markets of the mainland, Hong Kong and Taiwan in proportion to their market capitalisations you would since have done 74 per cent better than if you had spread your money over all of East Asia (ex-Japan).
If you had instead bought the Asean markets you would have done 56 per cent worse.
The two were roughly matched in performance up to that date but then deviated widely.
It did not begin when the Asian financial crisis broke in July last year. The trend was in place well before then.
Neither have done as well as US or European markets recently and one can always point out that Taiwan never attracted much foreign investment and, therefore, could be expected to do well on a relative basis when foreigners fled other regional markets. But, such quibbles aside, there are good reasons for the trend which the chart shows.
The mainland, Taiwan and Hong Kong never geared themselves heavily on foreign debt as did the Asean markets.
They also maintained healthy trade balances, which Asean did not, and never induced economic overheating to the extent which Asean induced it.
When recovery comes to Asia, Asean markets may do better for a period but Greater China has now established a lead that will not easily be chipped away.