The euro's runaway liquidity will help to support Asian equity market valuations and will provide the region with cheap finance to underpin its buoyant economies. Europe's intractable political and economic instabilities will also send trade deals to Asian businesses.
Numbers are showing some of these things already at work. Last Friday, for example, Asia-Pacific's main equity gauge closed only 5 points below its record-high level reached over the last twelve months. Since the beginning of the year, that index gained 17.3 percent – well ahead of the euro area's 10 percent (in U.S. dollar terms), despite the 0.05 percent interest rate offered by the European Central Bank (ECB).
The ECB's stated intention to significantly accelerate the growth of an already huge euro supply will continue to feed carry trades -- borrowing the cheap euro to invest in higher-yielding assets – but it won't do much else. Indeed, as the ECB evidence shows, its virtually free-money policies over the last three years have failed to raise and steady the euro area consumer lending in an environment of high unemployment (11.5 percent at the last count), or to stimulate investment spending at a time of declining aggregate demand and idle production capacities.
Asia's policy makers who were fretting about the prospect of rising interest rates in the United States can relax. They can now count on waves of cheap European money coming their way, on top of an existing pool of large dollar and yen funds sloshing about in global financial markets.
Asia will be able to finance its trade and budget deficits at rock-bottom credit costs because even Germany seems unable to stop the ECB's printing presses. And, if Asian leaders want to be prudent, they could use this liquidity manna to deleverage their economies a bit. In particular, private debt ratios (i.e., private debt relative to the gross domestic product – GDP) in a number of these countries are currently estimated between 150 and 200 percent.
At any rate, the excess liquidity spilling over from Europe will be a strong contribution to Asian economies, whose growth this year is expected to be in a range of 4-7.5 percent for seven of the region's largest countries.
China, of course, is the growth leader and the main contributor to the rapidly rising intra-Asian trade, which is making the entire region less dependent on out-of-the-area trade flows. Last year, for example, China was one of the main export destinations for Japan, South Korea, Indonesia, Thailand, Malaysia and the Philippines.
Asians are moving, Europeans are thinking about it
EU sanctions against Russia have also shown that a number of Asian countries have become serious global competitors in areas as diverse as agriculture and fisheries, manufacturing (including top IT products) and financial service industries.
I was not surprised to see that Asians could readily provide substitutes to EU farm and seafood exports, but I did not expect that they could instantly supply sophisticated hardware and accompanying software to manage Internet traffic that a sanctions-bound Western firm could no longer provide.
During a recent international meeting in Europe, I also heard anecdotal evidence offered by a conference participant from Central Europe about a large car-washing complex a South-Korean company sold and installed in his country for about half the price quoted by a German firm.
And, apparently, the Koreans had the whole project up and running in record time. The Germans, he said, needed months to make up their mind, "behaved like we were their colony and like it was their birthright to sell us the stuff."
The competitive Asia
The Chinese are also taking European market shares. Having become important actors in Italy's sophisticated textile industry, they are now building bridges, highways, high-speed train lines and modernizing deep sea ports on schedules and prices no European company can compete with.
Most of this will probably be old hat to some of you. But did you know that some Asian financial centers offered Russia a full range of debt management and credit services they were denied in the West? That was news to me.
And I was also intrigued to see how much the Japanese went out of their way to "explain" to Russians that they were forced by Americans (presumably because of their defense ties with the U.S.) to go along with sanctions, but that they were looking forward to resuming close economic and political relations with Moscow as soon as possible.
That was repeated last Thursday (September 4) by Tokyo's Governor Yoichi Masuzoe at a meeting hosting heads of Asian cities. [Mr. Masuzoe is a political ally of Prime Minister Shinzo Abe and has done delicate missions to China.] Japan, apparently, hated to see all the business deals going to China, South Korea and other Asian competitors.