The economic and financial downturn in the developed world has taken its toll on Asian emerging markets and the exchange traded funds (ETFs) that track them.

The latest figures suggest that Japan, Singapore and Hong Kong are in a recession, China’s economy is growing at a much slower rate than expected, and Indian spending has been squashed by the credit crisis.   It is suggested that the developed world’s economic crisis is the driving force behind this devastation due to Asia’s heavy reliance on exports, states the Economist.

To make it even worse, weak demand for products and problems securing credit are hindering foreign sales and gross domestic product (GDP) growth, forcing a pileup of cargo and huge amounts of inventory.  Robert Subbaraman, an economist at Nomura in Hong Kong, forecasts that GDP in emerging Asia will grow at 5.6% in 2009, a far cry from the 9% growth in 2007 and the expected 7% growth for 2008. 

The good news is that Asia is expected to recover sooner than the rest of the world. Its economy is relatively stronger than the rest of the world, there is ample room for governments to ease policies, such as cutting taxes or boost public spending, there are modest borrowing strategies of Asian households, and they have relatively low debt-to-GDP ratios.  

It is apparent that Asia is not sheltered by the rich world’s recession, nor will its economies continue to grow at alarming rates, however, the glass may still be half full and some feel that weariness among investors in the region may prove to be erroneous.

  • iShares MSCI Japan Index Fund (EWJ), is down 41% year to date.

  • iShares MSCI EAFE (EFA), down 53.6% year-to-date

Asia ETF

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.