Singapore and Taiwan

Like Hamlet’s gravedigger, markets are inured to grief. Japanese indices barely flinched on Wednesday when the world’s second biggest economy was revealed to have shrunk by 4 per cent quarter on quarter. On Thursday, a 10 per cent year-on-year fall in Singapore’s first-quarter gross domestic product and a similar drop in Taiwan’s output – the two biggest falls in Asia – hardly registered. The Straits Times index broke stride a little; the Taiex was actually up.

This is Hedonomics, where all news is good news. Three months ago, investors were girding themselves for another Great Depression; Asian equities have since put on almost 60 per cent. Asian bonds, as measured by JPMorgan’s total return index of dollar-denominated debt, are back to pre-Lehman levels. Companies, too, are exhibiting V-shaped behaviour: this week, Taiwan Semiconductor said it would re-hire hundreds of staff it fired late last year while Mazda reversed plans to impose a three-day week at its main plant in Japan.

It is entirely possible that markets overshot in March. But gloomy data should retain the power to unnerve. Singapore’s quarter-on-quarter decline of 15 per cent, for example, was only fractionally better than the 16 per cent fourth-quarter fall. In Taiwan, where markets are still infused with cross-strait euphoria, the yearly GDP fall was the worst on record. A report on Friday may show that joblessness has never been higher.

Morgan Stanley’s explanation for the rally in risky assets looks most likely: markets are being swamped by a wall of money unleashed by governments and central banks, causing a rerun of the speculation that drove indices ever higher two years ago. At some point, this must drain away, leaving fundamentals to fend for themselves. The trigger in Asia could be Chinese PMI data: recent unexpected softness in steel and electricity output data suggests that the May reading could slip back below 50. If the hope is artificial, the disappointment is likely to be real.

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