Driving Through the Data Fog in Asia

Mar 5, 2014

Driving Through the Data Fog

Michael S. Arnold

Economic data are by nature imprecise: Witness how often the initial readings need to be revised, in some cases significantly.

But a confluence of factors early this year is making it particularly difficult to gauge the state of Asia’s economies. One key question is whether or not the region is seeing a long-promised export bounce from the recovery in developed economies.

Ordinarily that would be fairly straightforward to assess – look at trade data for China and other key Asian exporters, import data for the United States, manufacturing purchasing managers indexes, inventory levels and the like.

The problem is that data this time of year are always distorted by the Lunar New Year holiday observed in China and much of Asia, which can close factories for up to two weeks. Additionally, the timing of the holiday – which sometimes falls in January, sometimes in February and this year falls across both months – makes straight annual or monthly comparisons troublesome.

On top of that, a particularly harsh winter in the United States has added a fresh layer of confusion. If exports to the U.S. are slower than normal, does it reflect an underlying shift in the patterns of trade, with consequences for Asian policy? Or are shipments merely delayed because of blizzards?

There also are questions about the reliability of the data. When China’s exports jumped by more than 10% in January — far beyond expectations – many analysts saw it not as a sign of a trade revival but as evidence of over-invoicing by companies trying to circumvent Beijing’s strict capital controls and move money into the country.

“With noise-to-signal ratios elevated” right now, JP Morgan said in a research report over the weekend, “it is hard to track trends in final demand.”

Bank of Singapore chief economist Richard Jerram noted recently that Asian economies finally seem to be seeing the long-awaited export bounce. PMIs for the region’s Newly Industrialized Economies (NIEs), including tech bellwethers South Korea and Taiwan, had risen steadily since July to their strongest level in almost three years.

Until this week, that is: Data Monday showed PMIs for both South Korea and Taiwan declined in February, casting doubt on the recovery thesis.

Was it the Lunar New Year? The American winter? Or just a normal blip?

Some analysts say the best solution is to average the figures for January and February to minimize the holiday distortion. BarclaysBARC.LN -0.28%

Capital suggests looking at six-month, seasonally adjusted figures to get a broader sense of the trend.

It may also be possible to work by inference. Barclays notes that exports to Europe from Asia’s NIEs were up 14.3% on-year in January – their strongest growth in nearly three years – while shipments to the U.S. rose only 0.4%. It also notes that industrial production in Taiwan held up much better than exports in January, which it says could reflect airport closures in the United States.

“The bad weather in the U.S. in January seems to have taken a larger toll on shipments from Asia than we had expected,” Barclays concluded.

Don’t tell that to Frederic Neumann, co-head of Asian economic research at HSBC.

“Most of Asia’s exports are landed on the West Coast” of the United States, he said, “so winter weather shouldn’t really reduce shipments.”

Policy makers trying to navigate at this time of year may just have to wait a bit longer for the data fog to lift.

“It’s difficult to get a true read on what’s happening with external demand for Asia at this time,” ANZ Chief Asia Economist Glenn Maguire said. “It’s likely to be only the March or April figures where we start to get a cleaner read on what’s actually happening.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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