Will the Greek debt crisis affect Asia?
The Greek debt crisis, which has sent bonds tumbling across southern Europe, has had a knock-on effect on stock markets in Asia. But one analyst says Asian banks and governments have limited exposure to Greek debt, so should weather the storm relatively unscathed.
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Stock markets across the continent sank one day after Greek government debt was downgraded to junk status and Europe remained divided over how to contain the risk. The Japanese Nikkei Index fell 2.6 percent; Hong Kong’s Hang Seng Index lost 1.5 percent, and China’s Shanghai Stock Exchange dropped 0.3 percent.
Yet Asia can take comfort in the fact that it has little immediate risk in the eurozone crisis because banks in the region are not believed to have much exposure to Greek debt.
“I don't see a direct impact on Asia,” says Peter Treadway, an independent analyst based in Hong Kong. “The No. 1 impact on Asia would be the banks, and I don’t see any major Asian bank exposure to Greece.”
Asia had more at stake in the United States’ crisis over subprime mortgages – since some banks in the region had invested in them – but was able to absorb that blow, he says. “They had to take a hit, but it didn’t make a major impact.”
The region (and the rest of the world) will have more reason to worry if Greece’s crisis spreads across Europe and drags the Continent back into recession. Many Asian countries, including big economies like China, Japan, and South Korea, rely heavily on exports to Europe.
Other looming problems
Looming larger than the Greek crisis are economic problems at home. Japan’s exports continue to suffer under a steadily surging yen, which makes Japanese products more expensive in US and European markets. Inflation in China has raised red flags among a growing number of economists and government officials, with Prime Minister Wen Jiabao identifying it this year as a major problem.
For financial analysts, another major concern is US pressure for tougher regulation of banks amid popular anger at Wall Street, encapsulated Tuesday in a daylong grilling by Congress of executives from Goldman Sachs.
"The markets have had such a good run that I think the [Greece and Portugal] downgrades were just an excuse to sell,” Chris Blair, an adviser at Patersons, a stockbroking firm in Australia, told MarketWatch. “I think the bigger problem will be regulatory pressure on the US investment banks.”