Share thisFalls in the value of financial assets worldwide might have reached more than $50,000bn, equivalent to a year’s global economic output, the Asian Development Bank will warn on Monday. Asia has been hit disproportionately hard, the bank will say, in a report that warns of many Asian stimulus plans lagging behind those of the leading global economies.
The ADB report estimates capital losses last year in Asia, excluding Japan, at $9,625bn, or 109 per cent of gross domestic product, compared with a global average of 80-85 per cent of GDP. For Latin America, the study estimates 2008 losses at $2,119bn, or 57 per cent of GDP.
“Even as Asia and Latin America have diversified their investment and trading partners, the effect of the slowdown on exports, finance and investment is earthshaking,” the report warns.
The ADB’s estimates take into account falling stock market valuations and losses in the value of bonds supported by mortgages and other assets, though not financial derivatives. About a fifth of the losses in dollar terms arise from the depreciation of many currencies against the US dollar.
The World Bank report said $2,500bn-$3,000bn in public and private debt in emerging markets needed to be rolled over in 2009, most of it denominated in foreign currencies. This would put pressure on developing country governments, many of which had inadequate reserves to help their banks and companies refinance, the bank said.
Although the bank itself and other official institutions such as the International Monetary Fund have been increasing their lending, even at the lower end of the $270bn-$700bn range “existing resources of international financial institutions would appear inadequate to meet financing needs this year”, it said.
The ADB study, to be presented on Monday by Haruhiko Kuroda, president, was commissioned from Centennial Group, a consultancy company.
Mr Kuroda says: “I am afraid things may get worse before they get better. However, I remain confident that Asia will be one of the first regions to emerge from it, and it will emerge stronger than ever before.”
Separately, the World Bank said on Sunday that developing countries faced a financing gap of between $270bn and $700bn a year as capital flows dried up, with only a quarter of vulnerable countries able to cushion the blow of the economic downturn.
The ADB report estimates capital losses last year in Asia, excluding Japan, at $9,625bn, or 109 per cent of gross domestic product, compared with a global average of 80-85 per cent of GDP. For Latin America, the study estimates 2008 losses at $2,119bn, or 57 per cent of GDP.
“Even as Asia and Latin America have diversified their investment and trading partners, the effect of the slowdown on exports, finance and investment is earthshaking,” the report warns.
The ADB’s estimates take into account falling stock market valuations and losses in the value of bonds supported by mortgages and other assets, though not financial derivatives. About a fifth of the losses in dollar terms arise from the depreciation of many currencies against the US dollar.
The World Bank report said $2,500bn-$3,000bn in public and private debt in emerging markets needed to be rolled over in 2009, most of it denominated in foreign currencies. This would put pressure on developing country governments, many of which had inadequate reserves to help their banks and companies refinance, the bank said.
Although the bank itself and other official institutions such as the International Monetary Fund have been increasing their lending, even at the lower end of the $270bn-$700bn range “existing resources of international financial institutions would appear inadequate to meet financing needs this year”, it said.
The ADB study, to be presented on Monday by Haruhiko Kuroda, president, was commissioned from Centennial Group, a consultancy company.
Mr Kuroda says: “I am afraid things may get worse before they get better. However, I remain confident that Asia will be one of the first regions to emerge from it, and it will emerge stronger than ever before.”
Figure 4: Government Spending and Private Industry, 2009. All that I’ve done is rescale the private sector weightings so that they equal, in total, the non-government, or private, share, of GDP. Now let’s take a cold, hard look at these industries. Which of them are like Freddie, and “at risk” for leaving the private sector and becoming part of the government? I’ve sketched out a “first cut” below, in Figure 5. 
Figure 5: Government & Private Economy, 2009 Highlighting Sectors “At Risk” Clearly, most of the other financial stocks are “at risk.” For that matter, so are all of the healthcare companies in America – for reasons I don’t need to go into here. Healthcare stocks are clearly at risk in 21st century America. So what’s left? Can’t forget the automotive companies, OR their suppliers. Autos are included in the “Consumer Discretionary” sector, so let’s break that out into its “Auto” and “Non-Auto” components. If we do that, I believe that we’ll get something like Figure 6, below. 
Figure 6: Government & Private Economy, 2009 Highlighting Sectors “At Risk”, Including Autos As before, I’ve colored industries in red if they’re “At Risk” for government ownership or control. Let’s tidy up a bit, and group all of the red “private stuff” together. 
Figure 7: Government & Private Economy, 2009 Highlighting Sectors “At Risk”, Including Autos, Sorted As you can see, I’ve grouped all of the “Government Directed” sectors of the private economy – Auto, Financials, and Healthcare – together. What I’m calling the “Government Directed” sector (ignoring the private defense contractors that have always worked closely with Uncle Sam) roughly represents about 21.4% of GDP. Now it’s time to group ALL of the “red stuff” (i.e., Government Spending and Government Directed Private Economy) together. I’ve done that in Figure 8, below. 
Figure 8: Somewhat Private & Gov’t Economy, 2009 Somewhat Private, Gov’t Controlled, Gov’t Spending Believe that the table makes it pretty clear that if: 
