Savings to the rescue in Asia

BLOOMBERG SPECIAL

Asian economies will be able to withstand the credit crisis much better than other developing economies.

Asian financial markets led by China, India and Malaysia are likely to outperform other developing nations as higher savings help borrowers to weather the global economic slump, according to Bank of America Corp. analysts.

Chinese domestic savings total more than 45 percent of gross domestic product, supporting economic growth, Lawrence Goodman, head of emerging-market strategy at Bank of America in New York, wrote in a research note. Malaysia and India have private saving rates above 30 percent, he said.

Fewer domestic bank deposits in Hungary have left the country among the most vulnerable to the global credit crisis, triggering a $25 billion rescue by the International Monetary Fund, World Bank and the European Union last month. Turkey and South Africa, which have saving rates below 15 percent, are also at risk and the markets will be slower to recover, Goodman said.

“The reliance on domestic economic activity will be of paramount importance,” Goodman said in an interview yesterday. “ A pool of savings can potentially provide the consumer with some insulation from swings in the business cycle.”

The decline in global growth will be “most challenging” for Turkey, South Africa, Hungary, Brazil and the Philippines Heavier selloff Emerging economies have been hurt by the biggest monthly decline in commodity prices in half a century, falling 22 percent in October, according to the Reuters/Jefferies CRB Index of 19 raw materials. Exiting investors pushed borrowing costs in the bond market to the highest in six years last month, based on JPMorgan Chase & Co.’s EMBI+ Index.

The bigger selloff in Asia will make the region less susceptible to further investor withdrawals, Goodman said. Investors have pulled $93 billion, or 54 percent of assets, from Asia’s emerging market stock indexes since July 2007. That’s more than double the 24 percent leaving the benchmark stock index in Brazil, the largest emerging-market economy.

China’s economic growth fell to 9 percent in the third quarter, its slowest pace in five years, as the shrinking U.S. economy cut demand for exports. The U.S. economy, the world’s largest, contracted by 0.3 percent in the third quarter, the biggest decline since 2001, and is likely to continue shrinking in the next three quarters, Bank of America economists forecast.

The MSCI Emerging Markets Index of shares fell 5.2 percent today, paring a record six-day, 33 percent increase. The benchmark has lost more than 54 percent of its value this year.

The author is a Bloomberg News columnist. The opinions expressed are her own