Asian investments largely unhurt by tsunami

(January 24, 2005) It has been four weeks since the tsunami devastated nations around the Indian Ocean. With the staggering death toll rising to over 225,000, it can sound cold-hearted to discuss economics and the investment environment. But for the nations affected by the catastrophe, repairing their economies is paramount. Within a week of the tsunami, Thailand was already encouraging tourists to return.

“From an economic point of view alone, it’s certainly not a negative,” says Mark Grammer, an Asia expert and manager of the Mackenzie Global Future Fund. “If it had hit in other areas which are more financially centered, it would have had a much more devastating affect on the economies of Indonesia and Thailand.”

Grammer stresses that no amount of economic growth can outweigh the massive loss of life and emphasizes that he is only speaking to broader national economic issues.

“Going forward, from an economic perspective, they’re going to be better off because a lot of this aid is going into rebuilding the infrastructure in a much better way than they ever had prior to the disaster,” says Grammer. “One can never say the individuals will be better off, but the region will be better off.”

While the waves destroyed thousands of lives in the affected countries, there was little damage done to the industrial centres that form the core of southeast Asia’s foreign investments.

“The impact of the tsunami disaster is not expected to be material, as none of the major cities, industries or infrastructure has been affected,” says Kok Boon Lim of Henderson Global Investors, one of the five sub-managers on the Mackenzie Select Managers Far East Capital Class Fund. “Market reaction has so far been very encouraging, with hardly any panic selling.”

Grammer agrees, saying the fundamentals for the region remain strong and support a bullish outlook.

“If there are any sharp falls in markets in the coming weeks due to the tsunami, we would view it as a buying opportunity,” Grammer says.

Among the top concerns for the international investment community is political stability, and there is hope that the tsunami may bring together factions that have been fighting for years. Sri Lanka has looked especially promising, as government forces deliver aid in areas long-held by the rebel Tamil Tigers.

Indonesia’s Aceh province, hardest hit by the waves, also has a history of insurgency against the national government. Fighting has yet to resume since December 26.

In Thailand, Prime Minister Thaksin Chinnawat looks likely to win re-election, as the populace responds positively to his handling of the disaster. Prior to the waves, his political future was less certain.

“The industrial areas [in Thailand] are really unaffected, so if anything you’ll see a bit of a slow-down in tourism, but there will be an equal pick-up in cement and construction,” says Grammer. “Those stocks actually reacted quite strongly; the cement stocks were up significantly after the Tsunami disaster started to settle in, and the construction stocks had a minor bounce.”

He says for the region as a whole, it will be important that local politicians use the aid to create “a long-term generator of economic activity.”

“You’re going to need an awful lot of spending just to get them back to where they were, but you’re updating and modernizing, so you hope the return off their investment will be higher than what was previously existing,” he says.

“It’s a horrible thing to have happened, but the silver lining to the disaster is that the level of aid that is coming in is going to rebuild all of these regions, if it is spent properly and actually does get to the people of the region,” says Grammer. “The level of infrastructure spending will take these people much farther ahead than they were prior to the disaster. It’s remarkable to see the support that they’re getting.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com