Asian markets decouple in 2002


The mood in Hong Kong is smug now U.S. companies face their failings, the head of the American Chamber says

By Alex Frew McMillan

HONG KONG, China (CNN) -- Asian markets have broken from U.S. markets in 2002, experts say.

The break, technically known as "decoupling", is clear on Friday in Asia, with U.S. markets closed on July 4 for the Independence Day holiday.

Asian stocks posted across-the-board gains Friday, with Taiwan, South Korea and Singapore all up 2 percent. Most Asian indexes produced strong runs this week.

That's despite choppy U.S. markets, reeling from scandals ranging from Enron, WorldCom and Martha Stewart to U.S. president George W. Bush, who admitted this week to trading irregularities (full story).

"There are quite a lot of push factors away from the U.S. and a lot of pull factors to Asia," James Malcolm, a currency strategist with J.P. Morgan in Singapore, said on Friday.

Smirks in Hong Kong

Since the Asian financial crisis, most markets in the region have followed U.S. markets, which were widely touted as the best-regulated and most liquid in the world -- until Enron.


Stock markets will always intertwine to a degree, with Toyota heavily invested in the United States and Pepsi marketing in China

But Asian markets have had a mind of their own in 2002, strategists say. In Hong Kong, the attitude in some quarters is smug.

"You get more smirks. These are the all-mighty and they're making mistakes," Jim Thompson, chairman of the American Chamber of Commerce in Hong Kong, told CNN.

"Hong Kong companies are basically saying, 'Don't tell us how to run a business if you have these problems back in the United States."

Investors are saying the same thing, to a degree. The Topix climbed 0.93 percent on Friday, one-third stronger than the S&P 500 on Wednesday (full Asia roundup).

U.S. money coming to Asia

In large part, U.S. money is returning to Asia because corporate reforms have pushed ahead and politics have stabilized.


Currency markets show the decoupling clearly, though Tokyo stocks have broken with Wall Street from one day to the next

The extent of the decoupling is very difficult to measure. It depends on whether you look at equity, bond or currency markets.

For stocks, local political, regulatory or company stories can drive a market like the Philippines lower, even if all around it rise.

Taiwan's stock market still tracks Nasdaq more than other in Asia, strategists say.

But on Friday, it climbed 2.43 percent, when Nasdaq rose 1.65 percent on Wednesday.

The decoupling is clearest in currencies.

Currencies show trend clearly

"Currencies have been very straight-forward beneficiaries of dollar weakness," Malcolm said.

Besides the yen, the Korean won, Taiwan dollar and Singapore dollar have had runs against the greenback.

The central bank equivalents in Singapore and Taiwan use the dollar to rate their currencies. But they also use the euro and the yen.

The yen has been on a rip since February. The central Bank of Japan has often intervened, boosting its record reserves (full story).

It stood at 120.54 against the dollar in early trade out of London on Friday. It will likely hold its strength as long as confidence in the U.S. rebound is low.

Stock markets will always reflect each other, particularly given the span of many multinationals.

"The sensitivity [to the United States] is going to be highest for equity markets and lowest for currencies, but even then you're going to get some sort of divergence happening," Malcolm said.

The decoupling is still because of U.S. investors. Many have lost their appetite for risk because WorldCom and the like have sunk.

U.S. stock prices are overvalued and still have another 20 percent to 25 percent to fall, according to Garry Evans, chief Japan strategist for bank HSBC.

Topix to chart own course

The Topix fell 12 percent in June, mainly because of declining U.S. tech stocks. But Evans stated the downside is small in Japan, in his June 28 report "Decouple, or be derailed?"

HSBC sees no signs that economic recovery is faltering in Japan, even if it is "anaemic." Stock valuations outside the tech sector are close to record lows.

The Topix will trade only as low as 950 at the worst, according to Evans. That's an 8.9 percent slip from Friday's close.

Even if U.S. stocks drop another 25 percent, he stated the Topix index will reach 1150 to 1200 by the end of the year.