For all the talk of a multipolar world, Asia’s export engines are discovering that they haven’t broken free from American hegemony; they’ve merely been repurposed to it.
Chalk it up to just how much more profitable US firms have become compared with most of the developed world — and increasingly emerging markets — since the end of Covid-19. To some economists, the widening gulf in corporate fortunes is a central facet of American exceptionalism, with its fallout being keenly felt across Asia, a continent that not long ago was synonymous with economic boom.
Investors have taken note of the shifting source of superior returns. Across sectors, an Asian premium has given way to an American landslide.
“Economies that are not embedded in the US AI sector are finding it harder to attract foreign capital,” ANZ Group Holdings Ltd.’s Singapore-based analysts Sanjay Mathur and Krystal Tan wrote recently. Unless the spell of American outperformance breaks, it will force a recalibration on policymakers from New Delhi and Jakarta to Manila and Bangkok. How should they fund future expansion and job creation? “Generally decent domestic growth fundamentals alone may no longer be sufficient to attract investment,” they warn.
In past cycles — most notably after the 2008 meltdown — Beijing could play the savior, mopping up regional exports and pouring investment capital across Southeast Asia. But with China trapped in its own quagmire of anemic consumption and industrial overcapacity, that counterweight has lost its mojo. Asia is caught in a double bind.
At first glance, it looks like a simple tale of Silicon Valley supremacy. Massive capital expenditure by American hyperscalers has given the US a post-pandemic turbocharger. A few hubs like South Korea, Taiwan, and Malaysia have stepped up tech exports to feed the machine. Other Asian economies have fallen behind.
However, the financial wedge appears to extend beyond a few hyperscalers. Back in 2010, the S&P 500 and MSCI All Country Asia-ex-Japan benchmarks were neck-and-neck, extracting roughly 2.8% to 3.0% in return on assets. But since 2022, the jaws have opened wide. While Asian corporate ROA stagnated at around 2%, American firms raised their asset efficiency toward 4.5%, delivering more than double the bang for every dollar on the balance sheet.
But the more striking divergence lurks beneath asset efficiency. In 2010, return on equity across the S&P 500 trailed MSCI All Country Asia-ex-Japan in nearly every major sector. Now the tables have turned. In consumer discretionary alone, a 2-percentage-point US deficit has morphed into a 31-point surplus ROE as stocks like Tapestry Inc., the firm behind brands like Coach and Kate Spade, boosted shareholder returns with debt-fueled acquisitions and share repurchases.
While Asian corporate performance was dragged down by structural shocks — most acutely the collapse of China’s property sector — corporate America had spent the preceding decade exploiting historically low borrowing costs. Large tech firms like Apple Inc. cannibalized their own shares via mega-buybacks, while pharma companies such as AbbVie Inc. swallowed rivals whole on borrowed money, loading their balance sheets with acquisition premiums that sent ROE soaring without a matching improvement in ROA.
Adding fuel to the fire is a gaping interest-rate chasm. Asian central banks have kept policy rates low to nurse fragile domestic growth, slashing their historical yield advantage over US Treasuries.
That makes it a double whammy for Asia — US stocks offer unbeatable equity returns, while US Treasuries offer superior real yields. The fallout for the region is painful. Local domestic savings are fleeing home markets to chase better risk-adjusted returns on Wall Street. Foreign direct investment has also grown selective. While Vietnam has captured some supply-chain flight out of China, capital is broadly snubbing countries reliant on domestic growth to chase anything tethered to US tech assets.
As Mathur and Tan observe, “US exceptionalism has changed the relative attractiveness of where capital is deployed.” That forces a tough mandate on regional central banks. To defend their currencies and be ready to stave off balance-of-payments distress, Asian economies will have to chalk up bigger current account surpluses than ever before.
Yet, central banks and fiscal authorities can only do so much; the business end of the blade lies in the hands of corporate leaders. Until Asian firms can sharpen their returns, American exceptionalism will act as a giant financial vacuum — whirling global capital back to Wall Street and leaving Asia to fight over the crumbs.
This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.