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The Asia agenda

Investors who kept faith in Asia as the world teetered on the brink of financial meltdown a year ago have been richly rewarded - the region’s markets rode out the stor-m in spectacular style and posted stunning gains.

The economic outlook for 2010 appears far sunnier. But with frothy markets betting on a smooth return to business as usual, the danger of a sudden correction hangs over Asia, unless the region can steer its way past some treacherous political risks.

The two most important issues for the world economy in the coming year are political - the pivotal relationship between the US and China, and the timing and coord-ination of exit strategies from the stimulus measures that kept disa-ster at bay.

As in any year however, the best-laid plans in 2010 could be derail-ed by unexpected shocks.

We have no idea about some of the light-ning bolts that will hit Asia in 2010 - the surprises that author and fund manager Nassim Nich-olas Taleb calls ‘black swans’ and former US Defence Secretary Donald Rumsfeld called ‘unkn-own unknowns’.

But there are plenty of known unknowns to worry about.

Mass social unrest due to econ-omic hardship was the dog that failed to bark in 2009. That could change in 2010.

“A structural rise in unemploy-ment will represent a key macro, political and security risk in 2010, even in states like China where growth has remained relatively solid,” said Michael Denison, rese-arch director at London-based Control Risks consultancy.

The decisive victory of the Cong-ress party in India’s 2009 elections was another good news story for markets that could be threatened if militants based in Pakistan pro-voke a confrontation again. Inve-stors are already rattled that reforms in India are going slower than expected.

The last thing they want is war risk. And finally, two key Asian heads of state are ailing, with the question of who and what will come after their tenures far from settled. Thailand’s 82-year-old King Bhu-mibol Adulyadej has been in hosp-ital since September this year, another complication in the long-running political crisis that has riv-en the country.

Many analysts expect instability to get even worse after his reign ends - giving Thai markets ano-ther rough ride. But most say there is little risk of contagion in other markets.

By contrast, in the eventuality of North Korean leader Kim Jong-Il’s death, the tremors will be felt in South Korea, Japan and beyond. Many analysts say Jong-Il’s death would herald the collapse of the regime in Pyongyang, leading possibly to prolonged civil war in North Korea, aggressive moves against the South, or the sudden reunification of the Korean peni-nsula. In all of these cases, the likely market reaction would be the same - panic.

Categorized | Business News

Tags : africa, cent-economic, china, light, markets, north, North Korea, pakistan, per-cent, policies-aimed, region, richly-rewarded, world, yesterday-said

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The Asia agenda

Categorized | Business News

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