Deflation seen hurting Asian stocks in 2009

Deflation seen hurting Asian stocks in 2009

Seoul: Deflation, or generally falling prices across the economy, will hurt Asian commodity producers and banks next year, while the risk of insolvency at technology companies will increase, Macquarie Group Ltd has said.

“We will have to go through the sharpest inventory correction in at least a generation," causing prices of goods to plummet, wrote Tim Rocks and Daniel McCormack, analysts at Macquarie, in a report dated 12 November. Balance sheet deterioration will be “most extreme" among firms that rely on emerging market sales, they said.

The MSCI Asia Pacific Index has tumbled 48% this year as a collapse in the US mortgage market sparked $950 billion (Rs46.36 trillion) in losses and writedowns at financial companies and arrested economic growth. The International Monetary Fund has predicted that the US, Japan and euro countries will contract, while the Asian Development Bank said the region will expand less than expected in 2009.

Still, some companies that survive the downturn will gain a “significant" edge in market share and competitive strength, Macquarie said. These include LG Display Co., the world’s second largest maker of liquid-crystal displays, Samsung Electronics Co., the biggest computer-memory maker, and China’s Nine Dragons Paper Holdings Ltd, according to the report.

Asian manufacturers will be hit next year amid deflation. “Companies struggling with financing problems will fire-sale finished goods," it said.

Banks will refrain from lending as asset values fall, while “the downturn and job losses in manufacturing-dependent countries, many of which are in North Asia, will be extreme," the report said.