Thursday, December 9, 2010

Asian road trip

I have just completed the quintessential Asian road trip - a 600km (375 mile) blast up Thailand's highyway 1 in a honda civic, from the centre of the rice belt to northern Thailand's largest city Chiang Mai.

Whilst the driving style at times reminds you that most Thais believe in reincarnation and that some are very eager to prove the theory the road is in most parts without fault.

At between 4 and 8 lanes wide and a dual carriage way it makes Australia's (and I am assuming the USA's) highway 1 look like a goat track. If the west is even to tread water we need to keep up with the pace of Asia's export supporting infrastructure projects. This highway shows what a few hundred million dollars can achieve, unlike the US the Thais aren't throwing money at banks that should have been let fail, they are building their future, not papering over the errors of the past.

America's fading influence in Asia

For over 20 years Bangkok's expats and rich and famous sent their children to International schools to study all their lessons in American English, but even in SE Asia's most American fixated country America's influence is fading. Many schools are now looking to the rise of a new empire and offering lessons in either English or Mandarin or both. The market has spoken, you need to speak the language of the buyer, and increasingly so that language is Mandarin.

Fed's QEII is leaking from the nappy

Seems the Fed's fetid QEII is leaking to all corners of the earth, not only is the Australian $ and Brazilian Real at multi decade highs, so is the Thai Baht, and like the rest of us in export oriented economies the Thais are none to happy about it.

From the Bangkok Post:

Little seen blocking baht's continued rise

The relentless rise in the value of the baht has again put Thai policy-makers in a bind. This time the baht has catapulted to 29.5 per dollar, a record high from roughly 33.2 per dollar at the beginning of 2010, and is set to continue its upward momentum next year after having taken a breather during the past few weeks.

The baht breached 30 against the dollar for the first time since 1997 when its devaluation precipitated the Asian economic meltdown. It has advanced more than 12% versus the greenback this year amid an influx of overseas capital. To be sure, the baht has been the best performing currency among its regional peers during the first 10 months of the year, save for the Japanese yen.

There are a multitude of factors which will continue to underpin the baht's strength in the coming year. Chief among these is the torrent of potentially destabilising capital inflows, attracted by high growth prospects for Asia, low government debt and currency appreciation. Like other emerging market countries, Thailand is bearing the brunt of easy money policies in the industrialised world, as money flows to higher-yielding markets, wreaking havoc on the currencies, creating inflationary pressures and complicating economic policy.

The huge capital inflows into Asia will further be underpinned by the Federal Reserve's US$600 billion asset purchase plan, increasing the amount of dollars available that can be invested in higher-yielding assets here. While the Fed is expected to buy $600 billion of treasuries between now and next June or roughly $75 billion a month, it might eventually raise the amount if this unorthodox measure fails to invigorate the ailing US economy, as was the case with the first round of "quantitative easing" two years ago when it increased the amount from $600 billion to $1.75 trillion.

By injecting liquidity into the system through newly created money, the Fed's second round of quantitative easing, dubbed QE2, will have the effect of lowering long-term yields and further depressing the value of the dollar. Historically low US and euro zone interest rates mean that foreign investors will continue to flock to Asia in search of higher yields, pumping up currencies and precipitating asset price bubbles.

This will likely prompt a variety of responses from our policy-makers, such as stronger foreign exchange intervention and more measures to stem the flood of capital on