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Is the Asian stimulus working?

Jul 24, 2009

If the financial meltdown was truly global in scale, it also brought out a unified response from governments and central bankers worldwide, including Asia. And there was a broad consensus on the solution to the crisis - economic stimulus. Now that a few months have passed since the stimulus packages were announced, it is perhaps time to look around to see if the results are starting to show. The results in Asia at least seem to be positive. For example, as per government data released yesterday, India's core industrial sector i.e., crude oil, oil products, coal, electricity, cement and steel has registered a growth of 4.8% YoY in the April-June quarter of this fiscal. This is as compared to 3.5% YoY growth that was recorded during the corresponding period last year.

Countries like South Korea are also doing well. As per Bloomberg, its economy in the last quarter grew at the fastest pace in almost six years. China and Singapore are also participating in a regional turnaround. In fact, the Asian Development Bank says that the East Asian economies (i.e., excluding Japan, South Asia and Central Asia) will rebound from the global economic crisis in a 'V-shaped' fashion.

It would seem that the stock markets have presaged this development as can be seen from the rise in the benchmark indices of India, China and South Korea since the start of this fiscal. Investors who kept their faith at a time when there was no cheer from economic data would be reaping rich rewards now. This opportunity was also available to long term investors in India.

RS 100 invested on April 2009
Source: Yahoo Finance

We are reminded of what Warren Buffett had to say about economic activity and stock picking - "The best year the… S&P has ever had in my investing lifetime was a year of recession... In 1954 the Dow was up 50 percent and the country was in a recession. It was the best year I ever had in my life. And I've had other good years in recessions, so you don't want to say, business is bad therefore I shouldn't buy stocks. That usually is the time to buy stocks. And when everything is wonderful, it's not usually a very good time to buy stocks."

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