Oil Drilling Activities Shift To Asia

This should be an interesting development in the oil frontier.

The BP oil spill and the attendant political squabble over the drilling moratorium sanctioned by the Obama administration but contravened by the Federal Courts have prompted oil rigs and or drilling activities to shift to Asia.

According to Bloomberg’s chart of the day,

The CHART OF THE DAY shows monthly totals in the Middle East and Asia Pacific, with the 271 rigs deployed on and and sea in Asia, the most since December 1991, according to data compiled by Bloomberg from Baker Hughes Inc. The lower panel tracks China’s crude imports since December 2003.

“Asia is looking more and more attractive because of a rush for natural gas,” said Tony Regan, a consultant in Singapore with Tri-Zen International Ltd. “Oil companies are wary about the Gulf of Mexico after the drilling ban, and the Atlantic basin doesn’t look good because of lower gas prices.”

Explorers deployed 14 percent more rigs in Asia in June, compared with January last year as China, India, Australia and Indonesia opened up areas. China and India are seeking fuel for economies growing at more than 8 percent a year. The almost doubling of crude prices since January 2009 has also spurred the quest for oil and gas, said Regan, a former executive at Royal Dutch Shell Plc.

Reliance Industries Ltd. discovered India’s biggest gas field in 2002, and LNG projects in Australia valued at more than A$80 billion ($71 billion) are scheduled for final investment decisions in 2010, according to Goldman Sachs Group Inc. in February. The A$43 billion Gorgon LNG project was approved last year by partners Chevron Corp., Exxon Mobil Corp. and Shell.

Asia’s oil-demand growth has risen 27 percent since 1999, compared with a 2 percent decline for North America and Europe, according to data from BP. Oil-product demand in Asia’s emerging-market nations will rise by about 3.8 percent a year on average to 23 million barrels a day in 2015, the International Energy Agency said in a report. The number of rigs in the Gulf of Mexico plunged to the lowest level in 16 years last week, Baker Hughes, a Houston-based oilfield-services firm, said last month.

Some thoughts:

This is an example where the cost of interventionism means a redirection of the use of resources to where it is more “valued”.

Nevertheless what has been “lost” for the US should translate to “gains” for Asia.

From BBC

Although Asia isn’t much of a big player in terms of oil and conventional gas reserves, Asia is the largest in terms of unconventional gas as previously discussed.

The other implication is that more drilling activities should bring life to the stocks of Asian oil-gas exploration companies.

Forbes.com: 30 Jobs In Asia

Here is an interesting slide show from Forbes. It suggests that there is a plethora of jobs in Asia from which foreigners can take advantage of.

Forbes.com makes a pithy explanation...

``The rationale? Asia is where wealth is growing the fastest. As a result, banks need to take on more money managers to look after all that newly invested cash, as well as more equity derivatives traders, commodities buyers and math-whiz portfolio managers.

``It's not just financial jobs that are in demand. As banks expand, there is a trickle-down effect on hiring practices. That's good news for all job-seekers in the region. Positions up for grabs include traditional ones, like those for lawyers, accountants and information-technology mavens.

``But places like the Philippines are also adding posts for mortgage processors and insurance underwriters, as those services are beginning to be outsourced to emerging markets. And competent HR heads will be needed to oversee all the new employees."

More...

``Call centers in India and the Philippines employ thousands of people who answer the phones and provide customer service or back-office support for major multinational companies. Such a big group requires a talented executive to guide them. "For every one expat manager, he's going to on average manage a group size of between 200 people for an IT operation and 600 for a call center operation," says Richard Mills, chairman of Manila-based Chalre Associates.

``For top-tier positions, experts say many companies are looking either for Asian-born workers who may been educated abroad or have risen through the ranks of a major multinational company. However, expatriates who have spent much of their career in Asia are equally sought-after, and there's even a need for recent graduates with specialized skills.

``But back in the world of finance, certain traders are particularly coveted, according to Doron Vermaat, managing consultant at English-language job Web site New China Careers. Algorithm/quant traders juggle high-frequency trades and must have facility in math, computer science or engineering. For these posts, language skills and nationality are secondary to technical expertise, Vermaat says.

``Burgeoning fields, like that of corporate social responsibility, are also boosting employment opportunities. Advisors ensure a company is seen as having a social mission, to better the community and the world, in addition to its stated business goals. From reducing carbon emissions to sponsoring charity events to promoting transparency and diversity, CSR is now a mainstay in most Western companies. "It's just Asia catching up with the Western world when it comes to implementing this into their businesses," Vermaat says. "It was always a relatively new concept in many Asian countries."

click on the image below to redirect link to the slideshow
If this serves as an opportunity for foreigners, this should be similarly an opportunity for the locals (me too?).

Filipinos Adore Facebook and Is "Asia's Social Media Network Capital"

Developments in the cyberspace is only confirming what the world knows about the Philippines, our addiction to "connectivity".

In the SMS sphere, we have claimed the title as the "text capital of the world" (wikipedia.org), whereas in the cyberspace, the Philippines appears to annex the title as the "social media network capital of Asia" with particular particular preference for "Facebook". (how about Facebook capital of Asia?)

This from Comscore, (bold highlights mine)

``In February 2010, Internet users in the Asia-Pacific region averaged 2.5 hours on social networking sites during the month and visited the category an average of 15 times. Across markets, the Philippines showed the highest penetration of social networking usage with more than 90 percent of its entire Web population visiting a social networking site during the month, followed by Australia (89.6 percent penetration) and Indonesia (88.6 percent penetration).

``Social networkers in the Philippines also showed the highest level of engagement on social networking sites averaging 5.5 hours per visitor in February, with visitors frequenting the social networking category an average of 26 times during the month. Strong engagement was also exhibited by Internet users in Indonesia (5.4 hours per visitor and 22 visits per visitor), Australia (3.8 hours per visitor and 20 visits per visitor) and Malaysia (nearly 3.8 hours per visitor and 22 visits per visitor)."

As discussed in How The Information Age Is Changing Our Lives, the growing use of social media worldwide is also a phenomenon being unraveled in Asia and the Philippines. Otherwise said, the information age is clearly becoming the "new norm".

For the Philippines, this only means that our political economy will increasingly be influenced by the rate of scalability of our adaption to the information age, and this should prove positive for free markets, as our social nexus to the world percolates.

Global Science and R&D: Asia Chips Away At US Edge

Even in the field of science and engineering, Asia appears to be rapidly chipping away at the edge of the Americans.

The press release from the US government's National Science Board (NSB) underscores such concerns, (bold highlights mine, interspersed charts from NSB)

``The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House today by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.

``"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."

``Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focussed attention on NSB's Digest, also released today, higlighting important trends and data points from across SEI 2010.

``Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.

``In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.

[It is competition that serves as a major pillar of innovation. R&D is only utilized only in response to needs of the market.-Benson]


```NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.'"

The above signifies as empirical evidence, which supports our earlier post, exhibiting how Asian high tech companies have rose to the occasion, using the recent recession, to mount a serious challenge on the leadership of Western companies. [see Asian Companies Go For Value Added Risk Ventures]

The other areas of concern as cited by the NSB.

-Cross Border R&D or the globalization of the Research and Development function [yes, R&D isn't a national standalone thing as misperceived by protectionists, it's being collaborated by different institutions worldwide.]

According to the NSB, ``Overseas R&D expenditures by foreign affiliates of U.S. multinational companies (MNCs) rose from $12.6 billion in 1995 to $28.5 billion in 2006. Europe’s share of these overseas expenditures fell from 73% to 65%, and Asia’s share increased from 15% to 20%. Foreign MNCs spent $34 billion in the United States in 2006, up from $15 billion in 1995. European-owned companies’ share of these expenditures was little changed at 75%."

-Patents

East Asia And The ASEAN Yield Curve

This is a sequel to our earlier post What’s The Yield Curve Saying About Asia And The Bubble Cycle?, but this time in graphs.

The idea is that steep yield curves emanating from central bank policies incentivize the market to engage in various interest rates arbitrages like carry trades, stock market speculations and other borrow-short-invest-long transactions which essentially fuels bubble cycles.

A reminder is that interest rate policies and the shape of the yield curves impact the asset markets with a time lag. Said differently, asset markets respond to rate curves belatedly.

As earlier shown, in the US yield curve has been extraordinarily steep which most likely implies strong support to her asset markets. Importantly, because the US government has reflating its banking system, the arbitrages are likely to support global markets more as investors seek to optimize returns at the long end.

This means that the US dollar carry trade is likely to inflate further. And carry trades aren't likely to be confined to the US dollar but diffused to major currencies which have all engaged in competitive devaluation via a combination of suppressed interest rates, fiscal spending and most importantly, quantitative easing programs.

In addition, because asset market reflect a time lag on the curve, credit systems hobbled by deleveraging (such as in the US, UK and parts of Europe) could probably see belated marginal positive responses or improvements but would not likely reach the level it had during the last boom.

It is in Asia and emerging markets where a credit fueled bubble cycle is likely to take place.

In Asia where low interest rates have generated more policy traction than in crisis affected Western developed economies, the yield spreads also remain elevated.

And as earlier pointed out, combined with the other policies all these have been manifested in asset outperformance.

Again the steepness of the yield curve in the region should lend support to the asset markets for the meantime. As local investors and speculators and the domestic financial institutions will be incentivized to take advantage of the wide chasm in interest rates.

The following charts are all from Asian Development Bank's Asianbondsonline.com.

China

Japan

South Korea

Singapore

IndonesiaMalaysia

Philippines

Thailand

Finally, it would be foolish for anyone to think that stock markets move in a straight line, because in reality they don't.

Nevertheless, any attendant weaknesses should be construed as countercyclical or temporary events because aside from many other factors, steep yield curves are likely to support credit activities that should work favorably for asset markets.

Emerging Market guru and Franklin Templeton's chief honcho Mark Mobius nails it when he recently wrote, ``what I said was that in a bull market as we are now experiencing, there will be corrections as the market continues to march upwards, and such corrections could be anywhere from 15 to 20%, or even 30%. We have to be ready for such short-term volatility. The markets in China, Asia, and Dubai have seen corrections of 20% or more during the recent crisis, so these kinds of corrections should not be surprising.I want to emphasize that I am not predicting any specific correction but I am just saying that we have to prepare for such corrections and that we not be alarmed by them given current market conditions. Overall, I believe we will continue to see markets rise in the long run." (bold emphasis mine)

In short, market operates in cycles.

Business Insider: How Asia Makes The U.S. Look Like A Third World Country

Interesting trivia from Business Insider...

Decoupling In Oil Markets: Asia's Developing Thirst

Decoupling in oil markets as seen by the Economist.


According to the Economist, ``GLOBAL demand for oil is set to rise from 84.7m barrels per day (bpd) in 2008 to 105m bpd in 2030, says the International Energy Agency in its latest annual energy report. Transport will account for 97% of this increase as rising numbers of cars hit the roads of the developing world. Demand from these countries will overtake that of the industrialised OECD nations by 2030. By then, America, Japan and Europe will be using less oil than in 1980. But the thirst for oil will balloon in Asia—and in India and China in particular—where demand is predicted to rise by as much as 400% compared with 2008."

See our earlier June post:

Decoupling in Oil Markets: The Centre of Gravity in Energy Markets Has Shifted To Emerging Markets

CLSA's Chris Wood: Asia and Emerging Markets Are Undergoing An Incremental Decoupling Process

CLSA's popular contrarian analyst Chris Wood says that Asia and Emerging Markets are in process of incremental decoupling where Asia and EM are in a bull market while Western economies are on a countercyclical phase of a bear market.

Click on image for the interview or go to the transcript below (Hat Tip Prieur Du Plessis)

Q: What have you made of the markets’ move in the past few weeks?

A: I was expecting what I call a counter trend rally, driven by a counter trend rally in the S&P this year. The key point is that the S&P in the fourth quarter last calendar year went further below its 200 DMA, and at any point since 1932, in the midst of the great depression. So, it was almost inevitable that we were going to have a counter trend rally at some point in 2009. Actually, I thought it would start with the arrival of the new administration in January-February, but it didn't start so much. My guess as to how far this rally can go is 1000–1050 on the S&P, but in my view from the Western view, the S&P standpoint, I am viewing this as a counter trend rally in a secular bear market for the US. I have a different view for Asia and India. I believe Asia and India remain in a secular bull market. So I have a fundamentally different view for the Western world and Asia.

Q: How would you describe what happened in 2008 then in India and other Asian markets like China? Deep cyclical correction? Over 10–15 months in an overall secular bull market?

A: I would describe that as a deep cyclical correction in Asia and EM driven by massive collective damage from what was going on in the Western financial system. That is why with my absolute return portfolio, I have been recommending investors from the middle of 2007 only to own my recommended portfolio, by hedging the Western financial risk by being short on western financial stocks. But in my view, the sell-off in Asian stocks last year was exacerbated by dramatic liquidation by foreign money particularly by hedge funds and so called fund of funds. What is being positive there in the rally began in Asia in October-November last year, is that we've seen growing local investor participation in Asian market, so the people who bought earlier in this rally since late last year weren't foreign fund managers but local investors throughout the region. That growing local investor participation is a long term positive.

Q: So are you saying that the secular bull market has commenced again in India and other Asian markets?

A: Yes, I think it has recommenced. It is two technical pieces of evidence that support that view. First, Asian markets and EMs have been leading this rally ever since they bottomed last October-November. Second, when the S&P made a new low in March, the Asian markets and EMs did not make a new low. That is technical evidence to me that Asian markets and EMs have become the asset class of choice in global equities. In the very short term because Asian markets and EMs have outperformed dramatically there is some short-term scope for the S&P to outperform. However, in the long run, in my view, the asset class of choice to remain fundamentally overweight is Asia and EMs. In my view, the biggest beneficiary of the dramatic monetary easing, quantitative easing undertaken by the Western central banks led by the Fed won’t be American/British consumers or American/British stock markets. The biggest beneficiaries will be Asia and EMs. In fact, the dramatic monetary easing could lead to massive asset bubbles in due course in Asia and EMs because the excess liquidity will flow to the best growth story and the best growth stories in the world are Asia and EMs. They have best demographic dynamics and have the healthiest economy because unlike the Western worlds, they do not have the structural leverage problems.

Q: Often, the measure of the restart of a bull market after a bear market is when the previous highs get taken out. How long is it before you think India and other Asian markets can take out their old bull market highs?

A: I don't assume that happens quickly, because I am bearish on the Western world. If I wasn't bearish on the Western world, then I would say very quickly, but I am. So in my view we are in a process here, we have commenced a process of incremental decoupling from Western markets. At the beginning of 2008, many investors in China and Indian equities believed in decoupling but by the end of 2008, after dramatic collapse in Asian stock markets after the Lehman bankruptcy, investors stopped believing in decoupling and started believing in the absolute opposite. The absolute opposite was a export-correlated train wreck with the US consumer. People became extremely negative on the most important EM story which was the not India but China. This year but the India and China economies have shown growth momentum; those very bearish concerns were misplaced. So we now have some empirical evidence that Chinese and Indian economies are able to decouple to a certain extent from the American economy, from the American consumer. The American economy is not growing, so that is building confidence in asset classes. We have begun the process of incremental decoupling. But I think unfortunately when the S&P turns down again when people realise that it is an L-shaped situation in the US, not an U-shaped or V-shaped recovery, you will get renewed correction. But my view is that next time the Western stock markets go down the Asian markets will prove much more resilient. But this process is incremental; it is not going to happen on a 12-month view.

Q: How bearish are you on the US markets?

A: I would expect a retest of 660 level in due course in the US if the equities correct and it coincides with the new dollar rally because the dollar rally is on deleveraging. But if the dollar keeps declining then the lows on the S&P need not be so large because some of the downside will be taken on the dollar.

Q: Even if the S&P were to go for a re-test you think none of the EMs, including India, will go for a test of their 2008 lows?

A: I don’t believe in a world where the S&P re-visits the lows of March. I don’t think the Asian equities markets, India will re-visit the lows because Indian economy has demonstrated its domestic demand driven resilience this year. We are now getting people talking of 5.5–6% growth, a few months back the RBI had come out with statements that growth was going to be much slower than expected and it said that growth was going to be 6%. Reality is at the beginning for this year, investors thought 6% was not attainable, but the data that has been coming out has been a positive surprise. The Indian economy is keeping its growth not by artificial stimulus measures by the government so basically the data has been a positive surprise this year and the government has been another positive surprise, which has been a clear mandate which should allow a more coherent policy which should allow for a renewed vigour in the infrastructure cycle now.

Q: How positive is the election?

A: I don’t want to over-dramatize it because of the Indian government history of disappointing on reform expectations. But I what I do think is positive is that most foreign investors who were on the sidelines before the election as they knew the situation is inherently unpredictable. So because of the clarity and because you don’t have a weak coalition government I think that was a major catalyst for foreigners to re-invest in India and logically the sector that should benefit is the infrastructure sector. The other point is that it has removed the risk that the fiscal deficit in India gets out of control.

Q: What are you overweight on in India, china and what sector in india?

A: I am overweight both on India and China but in the last quarter more India, because I was more overweight china in the first quarter. But in my long only portfolio, I am 33% in India and my biggest weight is in Indian banking though I did add a infra name after the election.

Q: Public sector units or private sector?

A: Both, but if I were making a new allocation it would be to a private sector bank.

Q: This trait to tanking up to defensives, you think that trend is over?

A: Tactically, Asian markets have had a big rally and people were fortunate in to be in the high beta names and they should be thinking of moving to less high beta names now, 70-80 on the oil price, you should reduce the beta names. But I would reduce in the commodity driven stocks, not banks.

Q: Do you find any discomfort with regard to valuations in India?

A: PEs look scary in India especially infra, but India is genuine domestic demand driven growth story. So it deserves a high PE premium, on a price to book basis, India looks undemanding. The whole risk in Asian valuations is in the potential negative correlation to the western world.

25 Largest Companies of the World

25 largest companies in the world as compiled by Bespoke Research

According to Bespoke Invest, ``For those interested, we highlight the 25 largest companies in the world. For each company, we provide its country, sector, price (local currency), year to date change, and market cap in dollars. As shown, Exxon Mobil (XOM) is the biggest company in the world and the only one worth more than $300 billion. PetroChina ranks second and is the only other company worth more than $200 billion. The Industrial and Commercial Bank of China is the world's third largest company, giving China two of the biggest three. Wal-Mart and Microsoft round out the top five. The United States still dominates the list with 12 of the 25 spots. China ranks second with four spots. General Electric used to be the biggest company in the world, but it has slipped all the way down to the 18th spot. Google (GOOG) is also on the list at number 22."

Including China Mobile which has been classified under Hong Kong China has 5. Although the others have been spread among Japan 1, Britain 2, Brazil 1, France 1,Switzerland 1, Netherlands 1, and Australia 1.

By region North America has 12, Asia 7, Europe 5 and South America has 1.

What is interesting is that we are seeing more Asian companies in the race among the elite.

How Does Swap Lines Work? Possible Implications to Asia and Emerging Markets

One of the reasons why emerging market governments appear to be “creating” alternative means of conducting exchange is because the credit crunch among banks, mainly centered on the US, has restricted their access to US dollars.

Consequently, this predicament has exposed some of the vulnerabilities of Emerging Markets, which can be identified as having too much foreign currency risk exposure, or too geared domestic balance sheets or excessive dependence on short term debts or too large current account deficits.

While the US has extended an almost unlimited swap arrangement with many G-7 countries, outside the G7 the dearth of access to the US dollar has precipitated a cavalcade of crisis among many Emerging Markets such as Pakistan, South Korea, Argentina, Hungary, Ukraine etc…

Our idea is that the recent swap arrangements with G7 nations have been aimed at mitigating the fallout from the ownership of hazardous junk instruments of G7 institutions by having an open access to US dollars by the provision of liquidity through this swap mechanism from the Federal Reserves with the other global central banks.

Aside from, of course, for political reasons, assistance have been extended to US allies.

This only highlights how the present monetary standard operates with the US as its foundation.

Now that the US has been feeling more of the ramifications from the implosion of the domestically originated credit crisis, it has opted to extend its currency swap arrangement to some emerging markets as Mexico, Brazil and Korea. Also to Singapore.

According to the Federal Reserve, ``Today, the Federal Reserve, the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore are announcing the establishment of temporary reciprocal currency arrangements (swap lines). These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well managed economies.”

Despite the recent downturn, global trade has significantly supported the US economy, thus the extension of dollar access facility seems to be targeted at cushioning or even inflating emerging market economies for them to sustain economic growth levels enough to continue to buy goods and services from the US.

Aside, there is this hope that once the crisis subside, the EM economies would continue to provide financing to the US by continually buying US financial claims or assets.

But you might wonder how a swap line work?

Mike Hammill of the Atlanta Fed’s research department provides a lucid illustration. His example is based on the September 18<sup>th</sup> Fed measures.

From Mr. Hammill (all highlights mine),

``A currency swap is a transaction where two parties exchange an agreed amount of two currencies while at the same time agreeing to unwind the currency exchange at a future date.

``Consider this example. Today the Fed initiated a $40 billion swap line with the Bank of England (BOE), meaning that the BOE will receive $40 billion U.S. dollars and the Fed will receive an implied £22 billion (using yesterday’s USD/GBP exchange rate of 1.8173).

Currency Swap:

``An underlying aspect of a currency swap is that banks (and businesses) around the world have assets and liabilities not only in their home currency, but also in dollars. Thus, banks in England need funding in U.S. dollars as well as in pounds.

``However, banks recently have been reluctant to lend to one another. Some observers believe this reluctance relates to uncertainty about the assets that other banks have on their balance sheets or because a bank might be uncertain about its own short-term cash needs. Whatever the cause, this reluctance in the interbank market has pushed up the premium for short-term U.S. dollar funding and has been evident in a sharp escalation in LIBOR rates.

``The currency swap lines were designed to inject liquidity, which can help bring rates down. To take the British pound swap line example a step further, the BOE this morning planned to auction off $40 billion in overnight funds (cash banks can use on a very short-term basis) to private banks in England.

``In effect, this morning’s BOE dollar auction will increase the supply of U.S. dollars in England, which would work to put downward pressure on rates banks charge each other.”

Aside from the IMF, the extension of liquidity of the Federal Reserve to other central banks may temporarily allay the problem of liquidity crunch.

And we could be seeing this knee jerk market response via the rally we are presently seeing in Asian equities aside from improvements in the credit spreads as this Bloomberg report,

``The cost of protecting Asia-Pacific bonds from default tumbled after the Federal Reserve increased cross-border funding and the U.S., China and Taiwan cut interest rates to boost economic growth.

``The benchmark index of credit risk for investment-grade borrowers in Asia outside Japan fell the most since it was created in September 2007. The Markit iTraxx Asia credit-default swap index of 50 borrowers, including Thailand and Hong Kong's Hutchison Whampoa Ltd., fell 90 basis points to 470, according to ICAP Plc data as of 9:50 a.m. in Hong Kong.”

Some Thoughts:

-The domino effect of EM economies had been largely exacerbated by a paucity of liquidity amidst global deleveraging and the high risk aversion landscape which amplified the weaknesses of some EM economies to the point of falling into a crisis. If the US extends more of this swap tools to more EM economies then we should likely see fewer financial pressure and perhaps reduce the risks for the IMF to exhaust their limited $200 billion funds. The important difference is that for many EM it has been a liquidity problem, on the other hand, for US banking and financial institutions it has been a solvency issue.

-The global financial crisis is a systemic risk which emanates from the implosion of US credit related financial claims. Any implication that EM economies are in worst condition than its US mortgage collateralized securitization/derivatives/shadow banking peers is unjustified.

-The recent surge of the US dollar can be seen in the light of its privilege as the world’s currency reserve status. In addition, we must not forget that the present crisis which centers on the shadow banking system, derivatives and structured finance are mostly denominated in US dollars, hence, settlement and payment must be made in US dollars. So the US dollar’s rise is unlikely coming from a safehaven standpoint.

-Swap lines are essentially the US Federal Reserve printing presses outsourced to central banks overseas.

-The US has been strenuously exhausting all means to prevent a deep recession which accentuates higher inflation risks down the road.