Where's the Kobe?Turning back to Asia, Nomura's Darby sees equities in Indonesia, Malaysia and China as overvalued right now and headed for a fall in 2007. Still, he remains bullish on Asia for the long term because consumption is set to grow and a falling oil price will benefit most countries in the region, all of which are oil importers apart from Malaysia. But despite strong economic growth in Asia, actual productivity remains lower than pre-1998 levels, says Michael Spencer, chief Asia economist for Deutsche Bank in Hong Kong. Lack of productivity and unsustainable growth were the key reasons for the Asian market crash in 1997; in a vicious investment cycle, aggressive foreign investment was pushing up asset prices, which in turn was attracting more foreign capital. The only problem was that these assets were producing so little. "But that doesn't change the fact that it's the fastest-growing area of the world," says Spencer. That certainly seems to be the view of the big U.S. companies right now, which are showing little concern for the region's vulnerabilities, as evinced by the following, each announced last week:
- Following up on a 2006 promise to make "significant and growing investments in China," Google (GOOG) is pairing up with China Mobile (CHL), providing exclusive search content to the mobile provider.
- Milwaukee-based Brady (BRC), which manufactures labels, signs and other security products, is investing in expansions in manufacturing plants in Thailand, Malaysia and India.
- A division of General Electric (GE) bought 1.39 billion shares in Thailand's Bank of Ayudhya PCL. The conglomerate paid 22.3 billion baht, or $624.5 million, for the 25.4% stake in Thailand's sixth-largest bank.