Anyone holding mainland Chinese shares has a wide smile on their face after the first quarter of this year. The Shanghai and Shenzhen markets have been the strongest performers in the world. The CSI 300 is up 33.6% in 2019 after Wednesday trade.
You'd think all those trade tensions would be long gone. But they persist, and not a lot has yet been resolved on that front. Chinese stocks are actually out of whack with the reality on the ground.
Investors also aren't quite so cheery elsewhere in North Asia, where many nations share similar industries. The longer-term fallout from the trade wars is having worse effect elsewhere in Asia than in the Middle Kingdom.
Malaysia's trade minister, Darell Leiking, has told the United States and China to "stop thinking only of themselves," and to feel a greater sense of "global responsibility," in an interview with the Financial Times. He has an excellent point.
The downdraft is heaviest in the tech-driven markets of South Korea and Taiwan. They're among the region's poorest performers. Seoul stocks are up just 7.9% in 2019, with the prospect of profits getting worse rather than better.
Taiwan's Taiex index is up a sunnier 12.0%. But with an equally export-driven economy, the stock market looks to trade figures for guidance. And it doesn't look good.
Japanese stocks have also underperformed. Although they're advancing in 2019, it's a sneak attack that's occurring under the radar. Japan's Topix has progressed 8.6% year to date, with one-third of those gains coming in the first week alone, when pension fund money starts hitting the markets.
The China-U.S. trade war has an impact well beyond higher tariffs on U.S. beef or Chinese smartphones. With consumers feeling apprehensive, and businesses waiting to see, Chinese imports have descended across the board, in virtually every category. That's causing pain in China's trading partners here in my part of the world.
Asia's trade cycle turned in late 2018, and has continued south, Standard & Poor's notes in its report Tougher Trade Winds Through 2019, which made its way into my inbox today. Those downturns normally extend for a couple of years, or longer, meaning this slowing should extend through 2019 and beyond.
That doesn't mean Asia is heading into recession. But gains will be eked out, just not strong. Even if China does resolve its beefs with Trump -- and that's an "IF" as tall as the Taipei 101 skyscraper -- trade supply chains are already crunching with the impact. It will take a long time to sort those back out.
For instance, should the United States begin exporting more energy to China, as seems one likely outcome of these talks, other nations such as Australia that are now supplying liquefied natural gas to China will suffer by equal measure. Global net demand may not change. But the ways those supply chains link and connect will have to adjust. That takes time, effort and money.
Markets in South Korea and Taiwan look particularly vulnerable because trade in electronics is particularly poor right now. They suffer from the trade wars and from slackening demand from the eurozone and North America. Shipments have been slowing and inventories are backing up. That overstock is going to take time to clear.
It's these factors that are causing folks like the Asia economics team at S&P to reduce their forecasts for Asian economic expansion. They've just adjusted that down another notch, to 5.2%, from a previous forecast of 5.3% and an actual rate of 5.4% in 2018.
Small steps perhaps, but the downward direction is clear. Chinese growth will certainly fall within its pre-mandated "estimate" of 6.0% to 6.5%. Both S&P and the World Bank peg the rate for this year at 6.2%. That's still one of the highest rates in the world.
But look at Australia, South Korea and Taiwan. All counting on shipments to China for a hefty share of overseas sales, they are looking at growth of just 2.5% (Australia), 2.4% (South Korea) and 2.3% (Taiwan) for this year, S&P foresees.
"Weak external prospects cloud the outlook" for smoggy Seoul, which is blaming its pollution problems on China, and should with its economic woes as well. Taiwan is trending down thanks to trade weakness, the rise in backed-up electronics shipments in Taipei warehouses, and the consequent lackluster interest in capital investment.
Vietnam has escaped Asia's electronics cycles before, with factories opening where there were none, providing the growth from a zero base. The county's economy has been driven by this kind of foreign direct investment, as well as strong growth in domestic consumption.
S&P warns that it will be immune to the international electronics cycle no more. Weak global electronics demand "will be a key headwind this year," the ratings agency says, "moderating from last year's stellar pace."
The good news is that household consumption growth remains strong in Vietnam, and elsewhere in Asia. This provides a "key backstop for the economy" in Saigon and Hanoi, S&P says.
Korea, Taiwan and Thailand all have persistently low inflation, and interest rates are also low. Those three economies will be looking to stave off deflation this year, and don't have a lot of options if domestic consumption doesn't hold up.
Asia, outside China, is going to have to stand on its own two feet while China and the United States get their complicated dance partnership sorted out.
"Tougher trade winds will mean that the region will have to rely more on domestic demand to lift growth back toward potential," S&P's team, led by Asia Pacific chief economist Shaun Roche, conclude.