Asian Adviser - October 1996
Year-on-year prices of a number of key processed commodities are down sharply. Much of the blame can be placed at the door of the Koreans although to be fair, they have been ably abetted by the Taiwanese, Japanese and Thais amongst others. Capacity expansions seem to have been predicated by a 'market-share-at-all-costs' strategy of trying to be the last one standing no matter what the short term pain. Some might argue that they have been watching too many Rocky movies.
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This is all great news if you are a consumer getting a better deal on a PC, a producer seeing lower prices on key inputs, or even Al Greenspan trying to walk the monetary policy tightrope in election year. Its just not so great if you are an Asian corporate that makes its living from shipping the stuff out of the door.
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If, and admittedly it might be a big if, the Koreans et al resist the temptation to bring on even more capacity at the first whiff of higher prices/stronger demand, we should be in a position by the end of Q1 1997, where the negative price component drops out of the figures [and better exports should come through]. The major wild card remains certain unnamed countries' tendencies to over-expand capacity. This would serve to prolong the pricing pain.then the risk is of a much harder landing in ASEAN a la Thailand this year. This would create air-pockets both in terms of growth and earnings expectations.
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[With the JPY/USD at 110], Asia as a whole does not [seem to] have a competitiveness problem. There are two exceptions though, Thailand and Malaysia, where labour cost pressures now resemble trends seen in Korea and Taiwan in the mid 1980s, and Japan in the early 1970s.