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Fallout: The Financial Crisis

America feels when Asian markets fall

Scott Tong Oct 27, 2008
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Fallout: The Financial Crisis

America feels when Asian markets fall

Scott Tong Oct 27, 2008
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TEXT OF INTERVIEW

Bill Radke: And it’s a familiar refrain now — panic selling abroad, look out at home. The Hong Kong and Philippines stock markets lost 12 percent of their value today. Japan lost another 6 percent to its lowest level since 1982.

Marketplace’s Scott Tong joins us from Shanghai. Scott, what is the psychology behind this continued dumping of shares?

Scott Tong: The fear and the panic here in Asia is that these Asian economies are so highly dependant on the American consumer, and that they’re losing their main export market. And that is that the American soccer moms and dads are going to stop purchasing, that the economic data from the U.S. is going to continue to be weak, and so all these economies which are so tightly connected to America are going to go down with it.

Radke: You know exporting is only part of an economy, but the picture you’re painting just drives home how export-dependent this region is.

Tong: Well if you look at the Philippines, which was down 12 percent today, more than 40 percent of the economy there is connected to exports. The Philippines has a lot of computer chips that it sends to China that snaps things together and sends them over to America. And the other big market that fell today was Hong Kong — well a lot of mainland Chinese companies are listed in Hong Kong, and the question is: How are the export-based companies in China going to survive all of this? And the answer today was not a very encouraging one, Bill.

Radke: Scott, the currency markets in Asia are just roiling. What part is that playing?

Tong: What’s happening is big investors are pulling out of their currency bets in countries like Australia, in South Korea, and they’re bringing them back to the safest places: at the U.S. dollar and the Japanese yen. So that is really hurting those emerging markets. The other country it’s really hurting is Japan, because the currency investors are coming back to the Japanese yen, which makes it too strong against the world, and Japanese exporters are really hurting now. So today, the Japanese government came out and said you know if we have to, we are going to intervene in currency markets to weaken the yen.

Radke: So America’s issues are hurting Asia. How does an Asian recession hit Americans back?

Tong: Well it shows, Bill, how flat the world really is. Let’s say Asia stalls and Asian consumers stall. And here in China, you have this fast-growing “middle class” that the world is kind of waking up to. Well if they start to stall, they stop buying American exports. American exporters face another headwind, and that is the value of the U.S. dollars. It’s so strong against the world right now, that makes American exports really expensive. So if I’m a consumer in Japan or China, maybe I want to buy the Chilean grape instead of the grape from California.

Radke: Marketplace’s Scott Tong in Shanghai. Scott, thank you.

Tong: All right Bill, thank you.

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