Analysis of the Asian financial markets of the day December 20, 2011

Analysis of the Asian financial markets of the day December 20, 2011

Article by Gag

In the day’s Asian financial markets have rebounded upward and the word “bounce” just use it to give an explanation for the small rise reflected the market’s close. The average rise of Asian financial markets was 0.4%.

The Korean Kopsi after a fall the previous day closed -3.4% with a rise of 0.9% and miso can say with the Nikkei up 0.5%.

On the negative side the ASX fell -0.2% and -0.1% Shanghai Composite.

It is clear that equity investors in Asian financial markets are influenced by the vacuum of power in North Korea that could be a destabilizing factor in the area. To this we must add that many of the big investors have been terminated years and prefer to be on the lookout of the developments at the beginning of 2012 hoping to restart their activities.

In the analysis of today I discuss three issues that may influence short-term Asian financial markets. The first is the strength of the Yen and the need for diversification by the Japanese government for risk diversification and growth stimulation.

The second issue we deal yesterday on the opening by the Chinese government to foreign investment from individuals and companies.

And third, the worrying growth of Australia based on the imbalance between different economic sectors.

Starting with the first issue. In recent months witnessed the steady strengthening of the yen against the dollar, this strength is causing problems in the already slow growth of the Japanese economy and Japanese forces the government to issue massive amounts of debt to stem the steady appreciation of the Yen. The latest figure is handled ¥ 67.000B, this figure represents a historical record surpassing the ¥ 40,000 b of 2.004.

As has been maintained since these lines, the increase of Japanese sovereign debt, which in itself is one of the largest in the world could pose a hazard if the interest rates on short-term being affected by a contraction Japan’s economy and could attend the second chapter of the crisis of European sovereign debt transferred to a new stage as Asia.

To try to diversify sovereign risk and seek to increase exports. As staged this diversification of risk, simply looking for alternatives to dollar investments. For this, the Japanese government is considering to invest yuan in debt and has begun negotiating with the Chinese government this option also allows an improvement of relations between the two governments in a politically sensitive time like the present, also enable the Japanese economy have greater relevance in the Chinese market.

For the Chinese market this investment is also interesting because its sovereign debt internationalization through foreign investors.

The second topic of discussion is the opening of dollar-denominated investments for both individuals, and businesses. The Chinese government believes that greater diversification of risk by their companies and in turn opens the door to its citizens to invest abroad.

With respect to foreign business investment to date has been limited by the constraints of the rules imposed by the QDII, they make each investment hindrance of some entity has to go through the governmental approval which makes this method has not been very attractive to most companies. The possibility of reform and easing of capital flows would diversify the Chinese financial market risks, and reduce tensions on the yuan.

The second aspect of this policy change on the investment of foreign capital is increased to $ 50,000 investment in foreign exchange individual. This measure seeks to prevent the accumulation of foreign exchange by Chinese citizens as well as enabling domestic business to a profitable investment banks would have a triple benefit. On the one hand, the presence of China investment banking at international level rise, on the other hand, the citizens will be covered against the yuan low and it would emerge currency outside government control.

In any case, these reforms would have provided a firewall that prevents an uncontrolled release of capital, allowing through this bottleneck control over capital flows to the government.

Finally comment on the news about future falls in interest from the Australian RBA. According to the RBA these decreases were based on the fear of being infected by the crisis of European sovereign debt and not a real reduction in economic growth. Moreover, Australia is growing at a level of 4.25%.

This high growth in an environment of economic crisis has shown a structural problem within the Australian economy. This problem is the excessive weight of mining in GDP, 30%, while other sectors such as manufacturing are serious problems that are exacerbated with a strong Australian dollar which prevents a sector such as manufacturing to take off addition to causing an increase in unemployment.

The situation in Australia with an increase in false and that the mining industry is excessively exposed to the vagaries of the market can produce over 2012 challenging situations that increase the risk of crises in the Asian area.