This is the script of CNBC's news report for China's CCTV on May 5, Tuesday.
Welcome to CNBC Business Daily, I'm Qian Chen. Emerging Asia may be enjoying a bull run in stocks, but the region may miss out on the "wealth effect" that would spur consumers to increase their spending, analysts said.
A rise in stock prices usually boosts the wealth of investors and the improved sense of financial security tends to bump up consumption, commonly defined by economists as the "wealth effect." This increase in spending theoretically results in higher incomes and profits, which in a virtuous cycle eventually supports economic growth.
(iShares MSCI Emerging Markets Asia (EEMA) -NYSEArca
MSCI AC Asia Pacific Index MXAP:IND
MSCI WORLD IDX (.WORLD :MSCI)
Year to date, the MSCI Emerging Asia Index has risen 12.7 percent, trumping the MSCI Asia Pacific Index's 11.05 percent increase and the MSCI World Index's 4.75 percent gain over the same period. Within emerging markets in Asia, China leads the pack with a 37.50 percent jump.
However, consumption rates across the region were less robust. China's retail sales notched up 10.6 percent in the first quarter of 2015 from a year earlier, while Hong Kong saw sales rise 14.9 percent in February, on the back of surging demand sparked by the Lunar New Year. Meanwhile, retail sales in South Korea and Singapore fell 5.7 and 7.4 percent on-year, while Indonesia's annual sales grew 16.5 percent in February.
A slowdown in real wage growth to 2.0 percent in 2014 is the main culprit, according to a HSBC report released last week. Average real wage growth was at 3.3 percent in 2013.
"This means households cannot increase their real consumption by as much as before [based on] labor income alone… in particular, workers in Hong Kong and the Philippines reported a decrease in their purchasing power last year," HSBC said.
China also gets singled out as the "intriguing" case where the wealth effect is "statistically insignificant" despite having the world's best performing index, it said.
Meanwhile, the run-up in mainland stocks could lead to a "crowding-out" of the wealth effect, HSBC said.
"Rising stocks increase expectations of future returns, which induce residents to substitute consumption with more investments. This behavior reduces households' immediate consumption and is prominent in China where investment channels are still limited," the report added.
Another factor mitigating the wealth effect in China is a low domestic participation rate in the equity market, even though data from the China Securities Depository and Clearing Co. revealed a 433 percent on-year jump in new trading accounts over the first three months of 2015.
In addition, the stock market's relatively low proportional comparison with China's gross domestic product (GDP) also undermines the positive lift from stronger equities, HSBC added. China's market capitalization represents nearly 90 percent of the country's GDP, ranking the mainland 7th place among emerging Asian peers.
"If there is roughly 15 trillion yuan of capital gains over the past year, and you assume 5 percent of the gains are spent - a fairly common rule of thumb - then that amounts to less than 1 trillion yuan in a 63 trillion yuan economy. Potentially significant, but maybe hard to see," Richard Jerram, chief economist at Bank of Singapore, told CNBC.
CNBC's Qian Chen, reporting from Singapore.
[JUSTIN RUBINSTEIN, US Geological Survey, Seismologist] "That's correct we're really seeing the waste water injection appears to be responsible for the majority of the increase in xxxx that we're seeing. Now, waste water injection in the process where they're injecting deep underground waste fluids from the oil and gas production process. Now, we develop waste waters no matter if you frack in the production well or not.This is saltwater this is typically trapped underground in the same location as the oil or gas and so, just by virtue of pulling out the oil or gas, the water comes with it. This water is often very salty and needs to be disposed off and so they're injected deeper underground. And most of the time we don't really see a problem, that's about 35,000 of these wells in the United States, and really a few dozen have we seen felt earthquakes associated with them. Now so far the biggest earthquake that we've seen associated with waste water injection is a magnitude 5.6 in xxxx, Oklahoma. Now, the massive increase in xxxx that we're seeing in the xxxx United States certainly suggests that we could be seeing more of earthquakes the size are possibly even our earthquake bigger. So, it's something we at the USGS are very concerned about that's why we release this report."
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