Asian resilience masks contrasting trends

The Asia region is showing resilience to the increased risks evident in other parts of the world. This is partly due to several countries stabilizing, or partially rebounding, during Q3 2012, including most of the Indian sub-continent – India, Pakistan and Sri Lanka.

However, the results are mixed, with downgraded scores during the quarter for a number of important investor hot spots. Apart from China and Japan (previously mentioned), they include Indonesia, South Korea, Taiwan, Thailand and Vietnam – a great swathe of the Association of Southeast Asian Nations. Rock-solid Singapore is another, although it remains the region’s safest location, on a score of 87.0, and the fourth-safest sovereign in the world.

Various factors are at play to explain the deteriorating confidence across southeast Asia, including weakened growth prospects in the Chinese and European export markets, and concerns over bank stability.

South Korea has slipped four places in the global rankings in Q3 2012, to 28th, back to where it was at the start of the year. Economists have become a little more concerned by South Korea’s economic outlook, downgrading scores for GDP growth, employment/unemployment and government finances, with concerns about deflated property market prices and high household debts creating a burden on public finances after measures taken to protect the banks’ balance sheets.

Vietnam, a frontier market attracting considerable investor interest not that long ago, has similarly fallen four places in the rankings, to 89. Indonesia is down five places to 64, Thailand six to 52 and Taiwan – still a comparatively safe option – is a three-place faller to 20.

Overall, the Asia average score has remained relatively robust, considering the downgrades that have occurred for North America and the eurozone. Asia’s score is unchanged since the beginning of this year, compared with falls in every other region, apart from Australasia and the Caribbean.

It means Asia now trails Latin America by just 0.1 point – hardly of much statistical significance – and the gap with Africa has widened to almost 16 points.